THE   PRINCIPLES   OF  WEALTH 
AND   WELFARE 


THE  PRINCIPLES  OF  WEALTH 
AND  WELFARE 

ECONOMICS  FOR  HIGH  SCHOOLS 


BY 


CHARLES   LEE   RAPER,  PH.D. 

\\ 
PROFESSOR  OF  ECONOMICS,  UNIVERSITY  OF 

NORTH  CAROLINA 


garfc 
THE   MACMILLAN   COMPANY 

LONDON :   MACMILLAN  &  CO.,  LTD. 
1906 

All  rights  reserved 


COPYRIGHT,  1906, 
BY  THE  MACMILLAN  COMPANY. 

Set  up  and  electrotyped.    Published  July,  1906. 


J.  8.  Gushing  &  Co.  —  Berwick  <fe  Smith  Co. 
Norwood,  Mass.,  U.S.A. 


So  fll>?  Wife 


35733 


PREFACE 

No  claim  is  made  that  this  little  book  is 
exhaustive.  It  is  only  a  simple  and  elementary 
discussion  of  the  more  important  principles 
which  are  involved  in  the  consumption,  pro- 
duction, and  distribution  of  wealth.  And 
wealth  is  everywhere  thought  of  as  a  means 
to  an  end  —  a  means  to  human  welfare  in  all 
of  its  manifold  aspects. 

The  author  desires  to  acknowledge  his  in- 
debtedness to  Professor  E.  K.  Graham,  of  the 
University  of  North  Carolina,  for  many  valu- 
able suggestions  as  to  the  statement  of  prin- 
ciples and  facts.  To  his  wife,  who  has  revised 
the  manuscript,  he  is  under  many  obligations. 

CHARLES   LEE   RAPER. 

CHAPEL  HILL, 

NORTH  CAROLINA, 

April,  1906. 


vii 


CONTENTS 

?AGE 

INTRODUCTION    .         .       .,,        .        .        .        .        .        i 

SECTION    I 
THE  CONSUMPTION  OF  WEALTH  —  WELFARE 

CHAPTER 

I.    WANTS  AND  THEIR  SATIATION      .       '•  *;  •  .        .      13 
II.    DEMAND,  VALUE,  PRICE       .        .        .        r  • .    .      35 

SECTION   II 
THE  PRODUCTION  OF  WEALTH —WELFARE 

A.     Introduction 
I.    PRODUCTION:  ITS  NATURE  AND  AGENTS      .        .      51 

B-    Agents  of  Production 

II.    LABOR  A  PRODUCING  AGENT        .        .        .  .      57 

III.  LAND  A  PRODUCING  AGENT.        .        .  76 

IV.  CAPITAL  A  PRODUCING  AGENT     .        .        .  .92 
V.    BUSINESS  MANAGEMENT  A  PRODUCING  AGENT  .     104 

C.    Aspects  or  Groups  of  Production 

VI.    AGRICULTURE     AND    MINING  —  PRODUCERS  OF 

WEALTH  .        .        .        .        .        .        .  .    128 

VII.  MANUFACTURE  —  A  PRODUCER  OF  WEALTH  .  134 
VIII.  TRANSPORTATION  —  A  PRODUCER  OF  WEALTH  .  139 

IX.  EXCHANGE  :  COMMERCE  —  A  PRODUCER  OF 

WEALTH  .   ,   .   .   .   .   .  .149 

ix 


X  CONTENTS 

CHAPTER  PAGE 

X.  EXCHANGE:  MONEY  A  STANDARD  OF  VALUE  — 

A  PRODUCER  OF  WEALTH   .   .   .   .161 
XI.  EXCHANGE:  MONEY  A  MEDIUM  OF  EXCHANGE  — 

A  PRODUCER  OF  WEALTH   .   .   .    .173 
XII.  THE  STATE  — A  PRODUCER  OF  WEALTH  .    .  188 

SECTION  III 

CONSUMPTION    AND    PRODUCTION;    MAR- 
KET PRICE  — WELFARE 

I.    DEMAND    AND    SUPPLY;    MARKET   VALUE    AND 

PRICE   ........    209 

SECTION   IV 

THE  PRODUCTION  AND  DISTRIBUTION  OF 
WEALTH  —  WELFARE 

I.    DISTRIBUTION:  ITS  NATURE  AND  STANDARD       .    227 
II.    DISTRIBUTION  OF  WEALTH  AND  WAGES      .        .    237 

III.  DISTRIBUTION  OF  WEALTH  AND  WAGES  ;  TRADES 

UNIONS  AND  FACTORY  ACTS        .        .        .    250 

IV.  DISTRIBUTION  OF  WEALTH  AND  RENT         .        .    275 
V.    DISTRIBUTION  OF  WEALTH  AND  INTEREST  .        .    286 

VI.    DISTRIBUTION   OF  WEALTH:    PAY  OF   BUSINESS 

MANAGEMENT  AND  PROFITS        .        .        .  293 

(#)  Management  and  its  Pay      ....  293 

(£)  Management  and  Profits       ....  297 

(c)  Monopoly  Management ;  its  Pay  and  Profits  301 

(d}  Legislation  and  Monopoly  Management        .  309 

VII.    DISTRIBUTION  OF  WEALTH:  THE  STATE     .        .  319 

APPENDIX 

COURSE  OF  READINGS 329 

INDEX     .        1 331 


THE   PRINCIPLES   OF  WEALTH 
AND   WELFARE 


INTRODUCTION 

The  Making  of  a  Living  a  Great  Force  in  Life ; 
Economics.  —  Religion  and  the  making  of  a  liv- 
ing, to  use  popular  expressions  to  describe  great 
and  complex  forces,  enter  into  the  life  of  every 
human  being,  in  some  form  or  other  and  to 
some  degree  or  other.  They  are  all-pervading 
forces.  They  are  always  at  work,  quiet  and 
unobserved,  or  violent  and  manifest  to  all.  And 
these  two  sets  of  forces,  though  in  many  respects 
seemingly  opposites,  can  never  be  entirely  sepa- 
rated. They  are  working  together  in  the  life  of 
every  human  being,  and  at  every  moment  of  his 
life.  Whether  or  not  the  economic  set  of  these 
mighty  forces  is  greater  and  more  important  than 
the  religious,  it  is  certainly  great  and  funda- 
mental in  human  life.  It  is  at  the  basis  of  all 
human  effort ;  it  surrounds  every  human  being 
from  his  cradle  to  his  grave. 

Economics :  a  Social  Science  of  Business  Motives 
and  Activities.  —  A  study  of  the  forces  involved 
in  the  making  of  a  living  —  in  the  consumption 
and  production  of  wealth,  —  a  study  of  these 
universal  and  all-important  forces  we  call  eco- 
nomics. As  in  wealth  consuming,  and  especially 


2         PRINCIPLES  OF  WEALTH  AND  WELFARE 

in  wealth  producing,  no  man  lives  entirely  or 
even  largely  to  himself,  so  economics  does  not 
deal  with  individuals  as  individuals  solely,  but 
with  individuals  as  parts  of  a  larger  body  called 
society.  It  is  a  systematic  study  of  the  busi- 
ness activities  of  society.  Neither  does  eco- 
nomics deal  with  the  wonderful  forces  of  nature 
in  themselves,  but  only  with  these  great  forces 
as  they  are  by  human  effort  transformed  into 
various  articles  for  man's  consumption,  or  as 
these  great  forces  aid  as  motive  powers  in  the 
production  of  the  manifold  forms  of  wealth.  A 
study  of  business  activities  does  not  include  the 
physical  sciences ;  it  does  not  include  the  great 
sciences  of  physics,  chemistry,  and  biology.  Nor 
does  this  study  include  all  the  social  sciences. 
It  does  not  deal  with  the  political  and  social 
forces  of  life  in  themselves.  These  forces  are 
in  themselves  distinct  from  those  of  the  business 
world.  Economics  deals  with  those  social  forces 
whose  standard  of  measurement  is  money,  while 
government,  law,  and  sociology  are  the  sciences 
of  those  social  forces,  the  yardstick  of  whose 
measurement  is,  or  at  least  should  be,  something 
very  different  from  money.  We  have  said  that 
religion  and  the  making  of  a  living  can  never 
be  entirely  separated.  Likewise  the  economic 
can  never  be  divorced  from  the  political,  social, 
and  intellectual  aspects  of  life.  All  other  as- 


INTRODUCTION  3 

pects  of  human  life  have  a  basis  in  the  economic, 
and  this  is  in  turn  fundamentally  and  vitally  in- 
fluenced by  the  others. 

Economics  deals  with  the  Production  and  Con- 
sumption of  Wealth.  —  The  economic  or  busi- 
ness world  has  within  itself  something  of  activ- 
ity on  the  part  of  the  individual,  —  an  exercise 
which  brings  pleasure  to  his  body  and  mind. 
It  has  also  something  of  effort,  which  brings 
discomfort  and  even  pain  to  the  individual. 
This  business  realm  is  ever  moving  and  throb- 
bing, is  like  the  sea  with  its  incessant  floods 
and  ebbs,  and  is  full  of  joys  and  pains  com- 
mingled in  different  proportions.  This  realm 
is  ever  consuming  wealth  in  its  manifold  forms 
and  qualities,  and  is  ever  producing  these  forms 
and  qualities.  In  its  consumption  it  uses  mate- 
rial forces  and  forms,  which  in  popular  speech 
we  call  goods,  to  satisfy  or  help  to  satisfy 
human  desires  and  wants.  These  goods  which 
are  the  results  of  human  activity  and  effort  — 
the  products  of  wealth  producing  —  do  not,  can- 
not, satisfy  all  the  desires  and  wants  of  man. 
They  can  satiate  the  lower  or  more  material 
wants,  and  are  an  important  means  in  satisfy- 
ing the  higher  wants.  They  do  not  satiate  the 
purely  religious,  moral,  and  intellectual  desires, 
but  they  are  the  greatest  means  toward  the  sati- 
ation of  these  desires. 


PRINCIPLES  OF  WEALTH  AND  WELFARE 


Wealth,  what  is  it?  A  Means  to  Man's  Welfare. 
—  These  goods,  which  we  call  wealth,  consist  of 
material  goods — lands,  houses,  tools,  machines, 
live  stock,  raw  material,  finished  goods,  bonds, 
stocks,  money,  etc., — and  also  of  certain  imma- 
terial goods.  A  man's  business  or  professional 
reputation  and  connections,  and  the  organization 
of  his  business  activities,  are  certainly  not  mate- 
rial goods  in  the  strictest  sense,  but  they  are 
nevertheless  thought  of  as  a  part  of  his  wealth. 
This  wealth  in  none  of  its  forms  should  be  con- 
sidered as  the  end  of  activity  and  effort,  but 
only  as  a  means  to  an  end  —  the  satiation  of 
human  wants.  To  consider  wealth  as  an  end 
in  itself  is  to  hold  up  a  low  standard  of  reli- 
gion, to  worship  a  temporary  and  material  form 
and  force,  and  is  to  place  man  beneath  material 
and  even  sordid  things.  Welfare  in  all  its  mani- 
fold aspects  should  be  the  end  of  all  economic 
effort,  as  well  as  the  end  of  all  economic  satis- 
factions and  joys.1 


1The  economic  realm  is 
composed  of  man  and  wealth, 
and  the  relations  of  these  may 
be  illustrated  by  the  accompany- 
ing diagram. 

Let  the  square  represent 
the  economic  realm.  Man  and 
wealth,  the  two  objects  within 
this  realm,  while  distinct  from 
each  other,  are  in  very  close 
and  vital  relations.  Man  in- 


INTRODUCTION  5 

Economic  Motives  and  Acts,  of  the  Individual 
and  Society,  to  produce  Wealth  and  satiate 
Wants.  —  In  this  economic  realm  every  indi- 
vidual by  virtue  of  his  very  nature  and  sur- 
roundings has  desires  and  wants,  both  of  his 
body  and  mind.  And  these  wants  can  be  sati- 
ated, more  or  less,  by  wealth.  It  is  wealth 
that  has  the  power  to  satiate  these  wants  or  to 
contribute  to  their  satiation.  It  is  wealth  that 
is  the  greatest  instrument  in  the  hands  of  man, 
that  is  a  universal  and  powerful  means  which 
enables  him  to  supply  his  wants,  whether  they 
be  the  most  simple  or  the  most  complex.  Not 
only  does  every  individual  have  desires  the  sati- 
ation of  which  is  more  or  less  dependent  upon 
wealth,  but  he  also  puts  forth,  in  some  degree, 
activity  and  effort  in  order  that  this  powerful 
instrument  may  become  his  own  possession  and 
may  be  for  his  own  use  and  pleasure. 

Man,  his  wants,  and  the  process  of  their  satia- 
tion, are  the  center  of  all  economic  forces  and 
of  all  economic  thought.  His  wants  may  be 
few  and  most  simple  in  their  nature,  or  they 

eludes  common  labor  and  managing  labor;  and  this  labor  is 
immaterial,  subjective  (belonging  to  the  very  being  of  man), 
exchangeable  (in  connection  with  man),  and  useful.  Though 
not  included  in  wealth,  this  labor  is  a  great  agent  in  its  pro- 
duction. Wealth,  on  the  other  hand,  consists  of  those  goods 
which  can  satisfy  man's  wants  and  which  are  the  result  of  man's 
efforts;  and  these  goods  are  material  (largely  so) ,  objective  (ex- 
ternal to  man),  exchangeable,  and  useful. 


6         PRINCIPLES  OF  WEALTH  AND  WELFARE 

may  be  many  and  most  complex.  They  may 
be  those  of  the  strong  adult,  of  the  infirm,  of 
the  child,  or  of  society  in  its  various  organiza- 
tions. To  satisfy  all  of  these  desires  and  wants, 
manifold  as  they  are  in  both  form  and  intensity, 
means  the  putting  forth  of  great  activity  and 
effort,  not  only  on  the  part  of  the  individual, 
but  also  on  the  part  of  society.  The  indi- 
vidual must  produce  wealth  with  which  to  sat- 
isfy his  own  wants  and  also  the  wants  of  those 
who  by  virtue  of  age  or  weakness  must  needs 
depend  upon  him.  He  must  produce  wealth 
for  the  use  and  pleasure  of  his  family,  his  church, 
his  clubs,  and  his  educational,  governmental, 
and  charitable  institutions.  In  this  production 
of  wealth,  moreover,  the  individual  cannot,  at 
least  should  not,  transgress  upon  the  rights 
and  privileges  of  other  individuals.  Every  eco- 
nomic motive  and  act  on  the  part  of  the  indi- 
vidual should  take  into  consideration  the  rights 
of  a  larger  body  called  society,  in  which  every 
individual  lives  and  puts  forth  his  efforts;  wel- 
fare to  society,  as  well  as  to  the  individual, 
should  be  the  ultimate  aim  of  every  economic 
act  and  should  be  included  in  every  economic 
motive.  And  it  is  the  first  duty  of  the  state 
to  create  and  maintain  conditions  which  are 
highly  favorable  to  all  producers  and  consumers 
of  wealth. 


INTRODUCTION  7 

Economic  Institutions  and  Conditions  largely 
the  Results  of  the  Past.  —  Ideas  and  processes 
which  are  entirely  new  seldom  come  into  any 
aspect  of  life,  and  when  they  come  they  are 
more  or  less  modifications  of  older  ones.  The 
seemingly  new  things,  which  come  into  mod- 
ern life  with  such  frequency  and  at  times  with 
such  great  popular  sensations,  are  in  reality  new 
only  in  their  outward  appearances,  or  at  most 
are  new  only  in  a  few  of  their  parts.  Of  the 
great  human  institutions  of  to-day  few  indeed 
are  of  very  recent  origin,  while  many  of  them 
reach  back  for  their  foundation  into  times  long 
since  passed. 

Modern  democracy,  of  which  we  hear  so 
much,  and  to  which  so  many  of  us  offer  our 
devotions,  is  old  in  thought  and  even  in  practice. 
Many  of  our  religious  ideas  and  processes  have 
come  down  to  us  from  the  far-away  Hebrews, 
while  many  of  our  intellectual  forms  and  pro- 
cesses were  worked  out  by  the  ancient  Greeks. 
Beyond  a  doubt  this  is  more  or  less  a  fact  of 
the  economic  aspects  of  modern  life.  Many  of 
our  present  institutions  in  the  realm  of  business 
activity  go  back  for  their  basis  to  the  seven- 
teenth and  eighteenth  centuries,  and  not  a  few 
of  them  to  a  period  much  earlier.  In  fact, 
most  of  the  economic  forces  of  to-day  are  as  old 
as  mankind ;  they  are  not  only  universal  but 


8         PRINCIPLES  OF  WEALTH  AND  WELFARE 

also  everlasting.  The  agriculturist  tills  the 
soil.  By  means  of  his  own  labor  and  certain 
forces  of  nature  he  works  upon  other  forces  of 
nature  in  order  that  he  may  produce  wealth 
with  which  to  satisfy  his  wants ;  and  this  pro- 
cess is  as  old  as  civilized  man.  The  idea  has 
not  changed,  though  the  methods  and  imple- 
ments of  tillage  have  changed,  and  in  recent 
times  with  wonderful  rapidity  and  results.  The 
idea  of  transforming  some  of  the  most  elemen- 
tary forms  of  wealth,  as  for  instance  raw  wool, 
into  the  highest  and  most  delicate  forms  —  into 
the  most  beautiful  fabrics  of  clothing  —  is  old, 
though  the  methods  of  such  transformation 
have  seen  marvelous  changes,  especially  within 
the  last  century.  In  our  enthusiasm  for  ideas 
and  things  which  are  modern  we  allow  our- 
selves to  believe  that  the  elements,  as  well  as 
the  external  forms,  of  our  present  system  of 
transportation  are  new,  though  in  reality  they 
are  as  old  as  history.  The  idea  of  transporting 
goods  from  one  place  to  another,  by  water  or 
overland,  by  some  method  or  other,  is,  to  say  the 
least,  very  old.  The  merchant,  acting  as  a 
middleman  in  the  exchange  of  economic  prod- 
ucts, was  as  well  known  to  the  ancient  Jews  as 
was  their  famous  temple  dedicated  to  Jehovah. 
The  Policy  of  the  State  toward  the  Individual's 
Economic  Acts ;  in  Part  Ancient.  —  Many  of  the 


INTRODUCTION  9 

fundamental  ideas  of  our  government,  religion, 
intellectual  processes,  and  economic  efforts  are 
indeed  old  in  their  origin.  And  the  policy  of 
society  toward  the  individual  producer  of  wealth 
is  also  in  its  essential  features  of  very  ancient 
origin.  The  state,  which  more  or  less  represents 
the  larger  body  of  individuals  called  society,  has 
always  taken  some  part  in  the  production  of 
wealth  and  welfare.  At  one  time  it  has  allowed 
the  individual  great  freedom  in  his  business 
activities ;  at  another  time  it  has  not  only  regu- 
lated the  individual's  activities,  but  has  also 
carried  on  in  itself  certain  economic  enterprises. 
Of  individual  economic  freedom  the  man  of  the 
present  possesses  much  more  than  did  the  pro- 
ducer of  wealth  in  the  ancient  or  mediaeval 
period.  The  chief  characteristic  of  the  modern 
individual  as  compared  with  the  wealth  producer 
of  old  Rome  or  mediaeval  England  is  perhaps 
his  freedom,  the  amount  of  liberty  which  the 
state  permits  him  to  enjoy  in  his  economic  life. 
This  he  prizes  as  his  choicest  treasure. 

This  remarkable  feature  of  modern  life  did 
not,  however,  come  into  being  suddenly,  or  even 
within  a  short  time ;  it  is  the  result  of  many 
forces  working  together  through  a  long  period. 
American  industrial  or  business  life,  of  which 
we  are  a  part  and  of  which  we  think  so  highly, 
is  by  no  means  a  creation  solely  of  the 


10      PRINCIPLES  OF  WEALTH  AND  WELFARE 

American  people ;  much  of  it  came  to  us  from  our 
motherland,  England,  and  from  the  continent 
of  Europe.  Our  present  wonderful  economic 
life  is  no  new  creation  ;  it  is  the  result  of  a  long 
line  of  marvelous  development.  It  is  the  result 
of  many  ideas  and  forces  which  have  worked 
together  through  centuries  and  centuries  in 
England  and  Europe,  and  which  have  been 
profoundly  influenced  by  the  wonderful  natural 
forces  and  environment  of  our  own  location,  as 
well  as  by  the  unprecedented  freedom  which  the 
individual  has  enjoyed  in  government,  religious 
dogmas,  and  economic  effort. 

The  Permanent  Economic  Forces  and  Principles 
and  the  Changing  Forms  in  which  they  Work.  — 
We  must  now  bring  our  introductory  words 
to  a  close  and  consider  in  detail  the  forces  and 
principles  of  the  consumption  of  wealth,  and  of 
its  production  and  distribution.  We  now  come 
to  examine  the  body,  blood,  and  brain  of  the 
economic  life  of  to-day.  In  our  examination 
we  shall  discover  ideas  and  forces  which,  though 
pulsating  with  great  vigor,  are  nevertheless  as 
old  as  mankind.  We  shall  also  discover  that 
these  forces  and  principles  are  now  embodied  in 
new  and  strange  forms,  and  that  they  are  at  work 
upon  a  scale  never  dreamed  of  one  hundred 
years  ago.  To  the  permanent  and  vital  parts, 
the  blood  and  brain  of  economic  life,  let  us 


INTRODUCTION  1 1 

give  our  most  devoted  attention.  The  forms 
of  their  embodiment^  and  the  degree  to  which 
they  work  in  different  places  and  at  different 
times,  are  largely  temporary  and  shall  take  a 
second  place  in  our  considerations  and  devo- 
tions. 

QUESTIONS 

(1)  How  great  a  factor  in  your  life  is  the  making  of  a 
living  ? 

(2)  What   is  economics?    Wherein  is  it  different  from 
law? 

(3)  What  is  wealth?     How  should  it  always  be  looked 
upon? 

(4)  What  is  the  aim  of  all  economic  motives  and  acts  ? 

(5)  Are  the  principles  of  business  life  always  the  same 
under  all  conditions  ? 


SECTION    I 

THE   CONSUMPTION   OF  WEALTH  —  WELFARE 
CHAPTER    I 

WANTS    AND   THEIR    SATIATION 

Nature  acts  upon  Man  ;  Wants.  —  The  won- 
derful being,  man,  his  wants,  and  the  process  of 
their  satiation  are,  as  we  have  said,  the  center 
of  all  economic  reasoning  and  action.  They 
are  at  the  basis  of  all  wealth  consuming  and 
producing;  they  are  the  fundamental  ideas  in 
human  welfare.  Man,  though  in  some  instances 
a  marvelously  refined  and  spiritualized  being, 
is  himself  largely  made  up  of  material  forces, 
and  he  is  throughout  his  life  surrounded  by 
nature  and  her  forces.  These  forces  are  ever, 
as  long  as  he  lives,  acting  upon  him.  They 
cause  him  to  be  like  a  furnace  the  fires  of  which 
must  from  day  to  day  be  fed.  They  create  in 
him  feelings  and  desires  for  something  which 
has  the  power  to  satiate  his  cravings ;  the  power 
to  supply  to  nature  the  fuel  for  which  she  is 
ever  calling.  These  desires  of  man  create  in 
him  wants,  and  these  wants  are  of  all  grades 

'3 


14      PRINCIPLES  OF  WEALTH  AND  WELFARE 

and  degrees.  They  range  from  the  smallest 
and  simplest  to  the  highest  and  most  complex, 
and  from  the  most  material  to  the  most  intel- 
lectual and  spiritual.  His  wants  continually 
and  loudly  call  for  something,  in  some  form  or 
other,  that  can  relieve  the  demands  which 
nature  incessantly  makes  upon  him,  and  that 
can  bring  to  his  wants  at  least  partial  satiation. 
As  man's  desires  and  wants  are  largely  created 
by  natural  forces,  so  his  demands  are  supplied 
largely  by  material  forces,  by  that  which  in 
popular  language  we  call  forms  of  wealth. 

Society  acts  upon  Man;  Wants/ — Nature 
is,  however,  not  the  only  force  which  surrounds 
the  individual  and  which  creates  within  him 
wants  and  demands  for  wealth.  The  individual, 
as  we  have  said,  lives  with  other  individuals — 
in  a  large  and  complicated  body  called  society 
— and  is  surrounded  throughout  his  life  by  the 
forces  of  this  society.  These  forces,  as  well  as 
those  of  nature,  not  only  surround  him  but  also 
make  deep  and  lasting  impressions  upon  him. 
They  give  shape  and  intensity  to  his  desires  and 
wants ;  they,  in  fact,  have  very  much  to  do  in 
creating  his  wants.  Ask  the  man  or  woman 
who  lives  in  the  great  cities,  in  which  society 
brings  individuals  into  close  and  vital  contact, 
in  which  the  social  forces  are  most  strongly  felt, 
why  they  have  certain  wants  for  food  and  cloth- 


WANTS  AND  THEIR  SATIATION  15 

ing,  and  they  will  invariably  tell  you  that  fashion 
or  style,  which  is  entirely  a  social  force,  in  a 
large  measure  creates  their  wants.  Human 
wants  are,  therefore,  the  results  of  the  powerful 
forces  of  nature  and  society,  and  this  is  true  of  all 
classes  of  men.  In  the  lower  ranks  of  society, 
for  the  mass  of  men  in  fact,  the  forces  of  nature 
are  the  more  important  in  creating  and  giving 
shape  to  wants,  while  for  the  higher  classes  the 
forces  of  society  are  the  all-powerful  ones. 

Along  with  nature  and  society,  there  is  an- 
other set  of  forces  which  has  much  influence 
upon  trie  desires  and  wants  of  man,  both  in  the 
individual  and  in  the  collective  body.  The 
tendencies  which  are  handed  down  from  father 
to  son,  the  physical  and  mental  inheritances 
of  the  individual  and  the  community,  have 
much  to  do  in  creating  economic  wants,  cer- 
tainly in  creating  particular  forms  and  degrees 
of  these  wants.  Economic  man  is  always  sur- 
rounded by  many  inherited  and  traditional 
forces,  as  well  as  by  natural  and  social  environ- 
ment. The  forms  of  foods  and  houses,  for  in- 
stance, which  the  individual  calls  for  may,  in 
many  cases,  be  traced  to  the  wants  and  demands 
of  his  ancestors. 

Classes  of  Wants.  —  As  we  have  said,  the 
wants  of  man  are  of  all  grades  and  degrees  of 
intensity.  This  fact,  however,  does  not  prevent 


1 6      PRINCIPLES  OF  WEALTH  AND  WELFARE 

us  from  making  a  general  classification  of 
them,  and  in  our  discussions  we  shall  treat  of 
them  under  the  following  heads  :  living  wants, 
developmental  wants,  and  governmental  wants, 
(a)  Living  Wants,  by  Nature  and  Society.  — 
The  first  and  most  important  of  these  classes 
of  wants  in  all  ranks  of  society  is  that  for  living, 
—  for  food,  clothing,  and  shelter.  These  wants 
are  universal ;  they  are  in  some  variety  and  in- 
tensity in  the  lowest  type  of  the  American 
negro,  as  well  as  in  the  highest  and  greatest 
Anglo-Saxon.  In  one  man  the  desire  for  food 
is  merely  for  subsistence.  He  cares  nothing 
for  a  variety  of  food,  or  for  dainty  forms  of  it. 
Let  us  consider  an  illustration.  Many  a  negro 
in  the  Southern  states  has  his  desire  for  food 
satiated  when  he  has  eaten,  in  great  quantities 
at  times,  of  hog  meat  and  corn  bread,  both 
cooked  in  the  simplest  way.  In  another  in- 
dividual the  want  for  food,  while  perhaps  not 
so  intense,  is  satiated  only  by  a  great  variety 
of  meats  and  breads,  prepared  in  many  different 
ways.  The  wants  for  food,  therefore,  cover  the 
widest  imaginable  range,  and  this  is  equally  a 
characteristic  of  the  wants  for  clothing  and 
shelter.  The  simplest  garment  that  can  cover 
the  body,  and  the  smallest  and  poorest  tent  or 
hut  that  can  afford  protection  from  the  rains, 
winds,  and  snows,  satiate  the  desires  of  many 


WANTS  AND  THEIR  SATIATION  17 

a  man  for  clothing  and  shelter.  There  are, 
however,  many  individuals  whose  desire  for 
clothing  can  only  be  satiated  by  the  most  elabo- 
rate and  artistically  made  dress,  and  whose 
wants  for  shelter  demand  the  most  extensive 
and  magnificent  palaces. 

In  any  of  these  wants  for  living  there  is,  as 
a  rule,  a  certain  element  which  nature  creates 
and  also  one  which  society  produces.  The 
wants  which  nature  creates  are  few  and  simple, 
yet  at  times  most  intense.  The  wants  produced 
by  social  forces  are  more  and  more  complex  and 
varied.  Many  a  man  has  desires  not  only  for 
the  necessary  elements  in  his  foods,  clothing, 
and  houses,  but  also  for  a  large  element  in  each 
of  these  purely  for  the  sake  of  variety  and  dis- 
tinction. When  such  a  man  becomes  desirous 
of  being  distinguished  among  and  even  above 
his  fellow-men,  when  he  has  desires  to  shine,  so 
to  speak,  in  the  realm  of  society,  then  his  wants 
become  manifold  and  complex,  and  more  and 
more  difficult  in  their  satiation.  We  can  most 
easily  understand  the  differences  between  the 
demands  which  are  created  by  nature  and  those 
created  by  society  by  examining  certain  rep- 
resentative illustrations.  The  dining-table  of 
New  York  City's  highest  social  class  must  con- 
tain not  only  the  elements  of  foods  necessary 
for  subsistence  and  health  of  body  and  mind, 


1 8      PRINCIPLES  OF  WEALTH  AND  WELFARE 

but  also  those  elements  which  social  ideas  de- 
clare to  be  necessary  for  variety,  distinction, 
and  social  sensations.  The  table  of  the  small 
Georgia  farmer,  on  the  other  hand,  is  supplied 
only  with  the  simple  necessities  of  life.  The 
English  lord  must  have  in  his  house  not  only 
the  utility  of  shelter  from  the  sun,  winds,  and 
storms,  but  also  sleeping  chambers  in  great 
number  and  variety,  halls  and  parlors  of  many 
kinds,  furniture  and  treasures  of  art  of  a  unique 
and  splendid  type.  But  the  simple  tenant  on 
the  Carolina  hills  must  have  but  a  one-room 
cabin. 

(b]  Developmental  Wants,  of  the  Individual 
and  Society. —  We  have  seen  that  the  living 
wants  arise  from  the  great  pressure  which 
nature  brings  upon  man,  and  as  a  resultant  of 
the  social  forces  which  ever  surround  him. 
We  have  assumed  that  all  these  wants  create 
in  man  more  or  less  of  the  necessity  to  put 
forth  activity  and  effort.  When,  however,  man 
begins  to  struggle  with  nature  and  her  mighty 
forces,  in  order  that  he  may  produce  something 
with  which  to  satiate  his  wants,  he  recognizes 
that  his  own  labor  possesses  little  power  as 
compared  with  that  of  mighty  nature,  and  that 
his  own  simple  muscular  strength  and  energy 
can  accomplish  exceedingly  slight  results.  This 
experience,  though  it  at  times  brings  him  much 


WANTS  AND  THEIR  SATIATION  19 

discomfort  and  even  pain,  creates  in  man  a  new 
desire  and  causes  him  to  put  forth  greater 
effort;  it  produces  in  him  a  new  want — the 
want  of  his  own  development. 

This  want  on  the  part  of  the  individual  to 
be  more  skilled,  and  to  possess  more  control 
over  nature  and  her  forces,  while  not  so  funda- 
mental and  universal  as  the  want  for  living  — 
for  existence  —  is  nevertheless  at  times  very 
strong  and  important.  These  developmental 
wants,  like  those  for  living,  are  manifold  and 
of  many  degrees  of  intensity.  In  fact,  the  wants 
for  development  and  those  for  living  in  many 
cases  go  hand  in  hand.  In  the  want  for  food, 
clothing,  and  shelter,  there  is  more  or  less  of 
a  want  for  a  strong  and  healthy  body  and  mind 
—  a  want  for  physical  and  mental  development 
and  culture. 

(i)  This  economic  being  called  man  has  wants 
for  his  own  muscular  strength  and  skill.  (2)  He 
also  has  wants  for  the  development  of  his  own 
intellectual  powers ;  has  wants  for  teachers, 
books,  scientific  apparatus,  works  of  art  and 
music.  (3)  This  economic  being  has  desires 
for  the  development  of  the  great  society  in 
which  he  lives  and  puts  forth  his  efforts.  He 
has  wants  for  more  efficient  highways  and 
streets,  whereby  he  may  the  more  easily  come 
in  contact  with  his  neighbors ;  he  has  wants  for 


20       PRINCIPLES  OF  WEALTH  AND  WELFARE 

boards  of  health,  sewers,  and  scavengers,  that 
the  disease  germs  which  threaten  his  life  may 
be  eliminated;  he  has  wants  for  fire  departments, 
with  which  to  protect  himself  and  his  property ; 
he  has  wants  for  schools,  in  which  he  may  learn 
to  become  a  better  citizen,  as  well  as  a  more 
efficient  producer  of  wealth  ;  he  has  wants  for  hos- 
pitals and  asylums,  in  which  his  fellow-men  who 
are  diseased,  infirm,  poverty-stricken,  and  mad, 
may  be  provided  for.  Economic  man  also  has 
wants  for  deeper  and  less  obstructed  rivers  and 
harbors  ;  he  has  wants  for  canals,  with  which  to 
connect  the  great  natural  bodies  of  water  and 
make  them  into  continuous  waterways  for  the 
purpose  of  transportation;  he  has  wants  for  light- 
houses and  life-saving  stations  as  an  aid  to  the 
sailor ;  he  has  wants  for  postal  and  railway  sys- 
tems, for  the  transportation  of  intelligence,  per- 
sons, and  goods.  (4)  Economic  man  also  has 
wants  for  the  development  of  his  spiritual  facul- 
ties. He  desires  to  know  more  of  the  Creator 
of  himself  and  of  his  fellow-men.  He  desires  to 
incorporate  into  his  own  heart  more  of  love, 
faith,  and  chanty,  more  of  honesty  and  honor. 
He  has  wants  for  ministers,  churches,  and  a 
great  system  of  religious  organizations. 

(c)  Governmental  Protective  Wants.  —  Wants 
of  this  class,  as  well  as  many  of  those  just 
mentioned,  arise  from  the  fact  that  man  is  both 


WANTS  AND  THEIR  SATIATION  21 

an  individual  being  and  a  part  of  a  larger  body 
called  society.  Robinson  Crusoe  in  his  com- 
plete loneliness  is  only  an  imaginary  man.  He 
exists  nowhere  in  our  whole  economic  realm. 
Economic  man  lives  not  by  himself  or  unto 
himself,  but  in  a  community  which  is  more  or 
less  densely  populated.  This  community  in  its 
organization  has  many  and  varied  forms,  but 
in  the  United  States  it  may  be  considered 
under  the  following  groups  :  county,  munici- 
pality, state,  and  nation.  Whether  of  one 
type  or  another,  this  community  is  a  living 
body  and,  therefore,  has  its  desires  and  wants 
of  various  kinds  and  degrees.  The  special 
kinds  and  degrees  of  its  wants  depend,  to  an 
extent,  upon  the  location  of  the  community,  — 
the  environment  given  it  by  nature  and  by 
man,  —  and  to  an  extent  upon  the  economic 
conditions  and  wants  of  the  individuals  who 
constitute  the  community.  Such  a  collective 
body  we  may  call  the  state,  whether  it  be  a 
small  or  a  large  community.  Many  of  the 
wants  of  this  state  are  those  for  development, 
—  of  its  own  collective  powers,  —  and  these 
have  already  been  considered.  It  yet  remains 
to  treat  of  those  governmental  wants  which 
are  more  essentially  of  the  nature  of  protection 
on  the  part  of  the  state  to  the  individual, 
(i)  In  the  first  case,  there  is  the  govern- 


22       PRINCIPLES  OF  WEALTH  AND  WELFARE 

mental  want  of  regular  and  permanent  bodies 
set  apart  for  the  administration  of  the  general 
affairs  of  the  people.  Not  only  is  there  a 
want  for  regular  legislative  and  executive  bodies, 
(2)  but  there  is  also  a  want  for  a  permanent  sys- 
tem of  courts  and  penal  institutions,  of  jails  and 
penitentiaries,  in  order  that  justice  may  be 
established  and  maintained  in  the  actions  of 
individual  with  individual,  and  of  individuals 
with  the  collective  body  which  we  call  the 
state.  (3)  There  are  likewise  governmental 
wants  for  armies  and  navies,  with  which  the 
peace  and  order  of  the  community  may  be  pre- 
served, and  with  which  the  reputation  and 
integrity  of  the  state  may  be  maintained. 

Satiation  of  Wants :  Consumption  of  Wealth. — 
All  these  wants,  whether  for  living,  develop- 
ment, or  governmental  protection,  should  be 
satiated.  It  is  wealth,  in  some  form  or  other, 
which  has  the  great  power  to  satiate  these  wants 
or  help  in  their  satiation.  To  the  continuous 
and  ever  recurring  series  of  wants  should  be 
adjusted  a  continuous  series  of  supplies.  If  the 
simple  and  necessary  wants  for  food,  clothing, 
and  shelter  are  not  satiated,  the  individual 
weakens,  becomes  diseased,  and  dies.  If  the 
demands  which  nature  makes  upon  him  are  not 
supplied  from  without,  man's  physical  energy  is 
soon  consumed  and  exhausted.  If  the  wants 


WANTS  AND  THEIR  SATIATION  23 

for  development,  both  of  the  individual  and  of 
society,  and  for  governmental  protection,  are 
not  satiated,  there  is  lack  of  progress,  there  is 
inefficiency,  there  is  exhaustion  and  disease. 
But  satiate  all  these  wants,  as  far  as  subsistence 
and  efficiency  both  demand,  and  there  will  be 
vigor,  health,  prosperity,  progress,  and  welfare. 

Consumption  of  Wealth  a  Consumption  of  Utili- 
ties.—  Every  individual  being  is,  therefore,  a 
consumer,  and  must  be  a  consumer.  He  is 
a  consumer  of  those  forms  of  material  things 
which  can  satisfy  or  aid  in  the  satisfaction  of 
his  wants,  whether  they  be  few  and  simple,  or 
varied  and  complex.  That  which  man  con- 
sumes is,  however,  not  the  substance  of  things 
but  their  utility  or  service,  though  in  their  con- 
sumption the  form  of  the  things  is  changed. 
The  consumption  of  foods,  for  instance,  is  the 
using  of  the  various  food  elements  which  they 
contain,  and  in  this  case  the  transformation 
takes  place  very  rap  idly 'indeed;  the  bread  is 
used  up  at  one  time.  The  consumption  of  a 
house,  to  meet  the  wants  for  shelter  or  home, 
is  also  the  using  of  the  various  elements  which 
it  contains,  and  in  this  case  the  transformation 
takes  place  very  slowly ;  the  house  is  used  up 
hour  by  hour  throughout  a  very  long  period. 
We,  therefore,  consume  utilities,  rather  than 
material  substances.  We  consume  that  which 


24       PRINCIPLES  OF  WEALTH  AND  WELFARE 

in  popular  language  the  world  calls  wealth. 
Our  wants  of  various  kinds  and  degrees  are  the 
causes  of  this  consumption  of  wealth  in  its 
manifold  shapes  and  qualities.  These  same 
wants  are  also  the  causes  of  the  production  of 
these  forms  of  wealth  —  the  causes  of  human 
activity  and  effort.  To  produce  forms  of  wealth 
or  utilities  which  can  satiate  or  help  to  satiate 
all  of  our  wants  is  the  ultimate  aim  of  the  pro- 
duction of  wealth  in  any  form. 

Wealth,  the  Power  to  satiate  Wants,  the  Result 
of  Effort. — As  we  have  said  in  our  introductory 
remarks,  economics  does  not  deal  with  the 
forces  of  nature  in  themselves.  It  deals  with 
these  forces  only  as  they  aid  in  producing  utili- 
ties which  can  satiate  human  wants.  While 
wealth  consists  largely  of  material  substances, 
it  by  no  means  includes  all  the  material  things 
of  the  world.  Unless  these  material  things 
have  the  power  to  satiate  human  wants,  and 
unless  they  are  produced  at  the  cost  of  human 
activity  and  effort,  they  are  not  wealth  ;  they 
are  not  of  use  to  man.  There  must  be  a  want 
on  the  part  of  man  for  a  material  thing,  and  it 
must  be  of  such  a  form  as  to  be  consumed  by 
man  before  it  can  begin  to  possess  the  quality 
of  wealth.  Human  effort  must  also  be  put 
forth  for  the  acquirement  of  a  material  thing 
before  it  becomes  wealth.  Air  and  light  are 


WANTS  AND  THEIR  SATIATION  25 

wonderful  material  forces,  but  in  most  instances 
they  are  not  wealth.  They  are  supplied  by 
mother  nature  in  such  quantities  that  man  has 
no  want  for  them  and  has  to  put  forth  no  effort 
in  order  to  obtain  them.  In  a  sense,  to  be  sure, 
these  substances  are  used  by  man.  In  a  sense 
they  are,  therefore,  utilities,  but  they  are  not 
forms  of  wealth  from  our  point  of  view. 

Satiation  of  One  Want  creates  a  New  Want ; 
Evolution  in  Wants.  —  We  have  said  that  wants 
of  some  form  or  other  are  ever  recurring. 
When  one  want  is  satiated,  another  is  created, 
and  the  new  want  may  be  of  the  same  form 
and  intensity  as  the  old,  or  it  may  be  a  very 
different  one,  a  higher  or  a  lower  one.  There 
is,  beyond  any  doubt,  an  evolution  in  human 
wants.  There  must,  therefore,  be  a  correspond- 
ing evolution  in  the  process  of  satisfying  these 
wants  —  in  the  process  of  producing  utilities 
which  have  the  magic  power  to  satisfy  them. 
And  many  of  the  world's  most  philanthropically 
disposed  men  are  spending  their  noble  lives  in 
attempting  to  contribute  to  this  evolution,  in 
attempting  to  create  new  and  higher  human 
wants,  and  in  attempting  to  discover  a  process 
whereby  to  produce  utilities  which  can  in  the 
fullest  and  best  manner  satiate  them. 

Consumption  of  Wealth;  Amount  and  Effects. 
—  As  we  have  already  said,  the  aim  of  all 


26      PRINCIPLES  OF  WEALTH  AND  WELFARE 

consumption  should  be  welfare,  to  the  individual 
and  society  alike.  The  amount  and  quality  con- 
sumed by  any  man  are,  therefore,  most  impor- 
tant and  vital  problems ;  the  consumption  of 
wealth  is  just  as  vital  a  problem  as  is  its  pro- 
duction. And  we  shall  treat  of  this  problem 
in  the  following  paragraphs. 

From  the  very  nature  and  purpose  of  con- 
sumption, it  is  clear  that  no  injurious  goods 
should  be  consumed.  Of  course,  the  injury 
which  comes  from  consuming  certain  goods 
depends  largely  upon  the  purpose  and  extent 
of  their  consumption.  The  use  of  a  certain 
amount  of  spirituous  liquors,  and  for  a  certain 
purpose,  may  bring  benefit,  while  a  larger  use, 
and  that  for  the  sake  of  dissipation,  brings  to 
human  life  weakness,  disease,  and  even  destruc- 
tion. The  motive  force  behind  consumption  is 
a  human  want,  which  nature  and  society  have 
created  in  the  individual  or  in  the  collective 
body  of  men,  and  to  satiate  this  want,  and  per- 
haps incidentally  to  create  a  higher  want,  should 
be  the  object  of  all  consumption.  Consump- 
tion is  in  itself  not  an  end ;  it,  like  wealth, 
should  be  only  a  great  means  to  a  greater  end 
—  human  welfare  or  greater  physical,  mental, 
and  moral  efficiency  in  the  individual  and 
society. 

Consumption  should  never  be  separated  from 


WANTS  AND  THEIR  SATIATION  27 

the  ideas  and  problems  of  production.  Man 
should  consume  in  order  not  only  to  live,  but 
also  to  produce  wealth  and  welfare  —  to  put 
forth  great  and  efficient  activity  and  effort.  To 
satisfy  his  normal  wants,  whether  created  by 
nature  or  by  society,  is  to  add  a  large  element 
to  man's  welfare  and  pleasure.  It  is  also  to 
add  to  his  efficiency  as  a  producer  of  wealth, 
as  well  as  to  make  of  the  individual  the  great- 
est possible  man  and  citizen.  The  putting  forth 
of  activity  and  effort  by  man  not  only  produces 
wealth,  but  also  develops  him  physically,  morally, 
and  mentally. 

There  should  be  no  waste.  The  amount  of 
wealth  consumed  determines,  as  we  have  said, 
not  only  the  amount  produced,  but  also  the 
efficiency  of  the  consumer  as  a  producer.  It 
likewise  determines,  in  a  large  measure,  the 
standard  of  honesty  according  to  which  the  pro- 
ducer acts  in  all  his  business  relations.  The 
more  wealth  he  consumes,  the  more  of  the  goods 
produced  he  desires  to  keep  for  his  part,  and  the 
less  he  is  willing  to  allow  to  the  other  agents 
of  their  production.  Too  many,  yes  a  thousand 
times  too  many,  are  the  instances  of  dishonesty 
and  crime  in  the  business  world  because  of  ex- 
travagant consumption.  Extravagant  or  care- 
less consumption  by  an  individual,  or  by  a  group 
of  society,  is  not  only  a  waste  of  wealth,  but  it 


28       PRINCIPLES  OF  WEALTH  AND  WELFARE 

is  also  a  positive  harm  to  society,  if  indeed  not 
to  the  individual  who  thus  consumes. 

Of  this  waste  of  wealth  we  have  to-day  a  vast 
amount.  It  seems  to  us  that  a  part  of  the 
economic  world  has  gone  mad  in  its  extrava- 
gant and  careless  consumption  of  wealth,  in 
its  consumption  of  utilities  which  in  many 
cases  do  not  really  belong  to  the  individual 
who  thus  consumes  them.  Vast  amounts 
burned  in  the  fires  of  dissipation,  so  to  speak ! 
Foods  and  drinks  of  every  conceivable  kind 
and  quality ;  dress  and  jewelry,  to  the  enumera- 
tion and  description  of  which  there  is  no  end ; 
houses  in  many  lands,  in  the  building  of  which 
the  four  corners  of  the  earth  have  been  com- 
pelled to  contribute  a  part ;  horses,  carriages, 
and  automobiles,  of  every  description  —  enor- 
mous consumption  ! 

Many  do  not  consume  enough  for  Efficiency ; 
Cannot.  —  There  are  many  normal  wants,  and 
their  degrees  of  intensity  vary  within  a  very  wide 
range.  We  believe  that  the  ideal  in  the  satia- 
tion of  these  wants,  of  each  grade  and  degree 
of  intensity,  is  that  of  strength  and  efficiency. 
We  believe  that  consumption  should  be  in  kind 
and  in  amount  in  strict  proportion  to  the  want. 
The  simple  wants  for  living  —  food,  clothing, 
and  shelter — are,  or  at  least  should  be,  easy  of 
satiation.  Here  there  is  a  call  for  utilities  to 


WANTS  AND  THEIR  SATIATION  29 

be  consumed,  not  for  the  sake  of  variety  or 
distinction,  but  for  subsistence  and  efficient 
strength.  To  satiate  the  wants  of  this  kind 
should  not  be  very  difficult.  It  does  not  re- 
quire a  great  amount  of  wealth. 

For  some  cause  or  other,  however,  many  in- 
dividuals, even  in  these  most  progressive  times, 
cannot  satiate  their  simple  wants,  at  least  to 
the  point  of  efficient  strength.  It  may  be  due 
to  their  lack  of  activity  and  effort,  because  they 
produce  little  wealth.  It  may  be  because  they 
are  robbed  of  a  part  of  that  which  they  do  pro- 
duce. They  live  in  the  barest  way.  Oftentimes 
they  have  not,  for  consumption,  a  sufficient 
amount  of  meat  and  bread,  a  sufficient  quantity 
of  clean  and  warm  clothing,  and  a  healthful 
dwelling  place.  They  do  not  consume  sufficient 
wealth  to  satiate  to  an  economical  degree  their 
simplest  and  most  fundamental  wants.  In  the 
larger  cities  there  are  millions  of  people  who 
do  not  consume  sufficiently  to  make  themselves 
and  their  children  strong  and  efficient  producers. 
There  are  even  millions  who  do  not  consume 
utilities  in  amounts  large  enough  to  enable 
them  to  live  out  their  natural  lifetime.  Millions 
who  really  are  dying,  though  slowly,  because 
their  simplest  and  necessary  wants  of  life,  be- 
cause the  simple  calls  which  nature  brings  to 
them,  are  not  satisfied  !  They  are  dying  because 


30      PRINCIPLES  OF  WEALTH  AND  WELFARE 

their  wants  call  for  good  bread  and  meat,  and 
are  supplied  by  poor  foods ;  call  for  good  rai- 
ment, and  are  supplied  by  rags;  call  for  clean 
and  healthful  houses,  and  are  supplied  by  dirty 
and  foul  holes.  And  these  people  do  not  con- 
sume more  wealth,  as  much  as  their  simple 
wants  and  necessities  absolutely  demand,  be- 
cause they  have  it  not. 

Miserly  and  Wasteful  Consumption ;  Igno- 
rance. —  There  is  another  class  of  men  who, 
though  possessed  of  sufficient  wealth,  do  not 
consume  an  amount  large  enough  for  efficiency 
in  strength  and  skill.  The  miser  consumes 
little,  mainly  because  he  loves  and  worships 
wealth  as  an  end  ;  its  possession  is  to  him  the 
end  of  life.  Fortunately  for  human  welfare, 
this  class  is  a  very  small  one.  There  are  others 
besides  the  miser  who  have  wealth,  but  do  not 
consume  enough  of  it.  There  are  not  a  few 
men  who  consume  less  of  wealth,  for  them- 
selves and  their  children,  than  their  efficiency 
as  producers  really  demands,  and  their  insuffi- 
cient consumption  is  due  in  a  large  measure  to 
their  lack  of  intelligence  and  foresight.  They 
do  not  begin  to  understand  the  great  advan- 
tages, present  and  future,  to  come  from  a 
greater  consumption. 

Ignorance  and  lack  of  sound  judgment  are 
also  responsible  for  wastes  in  consuming  wealth. 


WANTS  AND  THEIR  SATIATION  31 

There  is  great  waste  in  the  foods,  clothing,  and 
houses,  which  many  people  use.  The  foods 
are  prepared  for  the  table  in  such  a  manner  as 
to  destroy  very  much  of  their  nutriment.  The 
lack  of  intelligence  in  cooking  is  not  only 
responsible  for  waste  in  consumption,  but  it  is 
also  responsible  for  much  of  the  misery,  weak- 
ness, disease,  and  crime  of  mankind.  The 
great  prevalence  of  indigestion  and  dyspepsia 
among  the  Americans  is,  it  seems  to  us,  due  in 
a  large  measure  to  their  cooking.  Not  only  is 
ignorance  a  cause  of  much  waste  in  the  foods, 
but  it  is  also  responsible  for  waste  of  wealth  in 
clothing  and  housing.  Many  a  man  consumes, 
in  attempting  to  satiate  these  wants  of  his, 
clothing  and  houses  which  have  the  minimum 
amount  of  real  and  vital  use  and  the  maximum 
amount  of  gaudy  display.  We  most  readily 
grant  that  the  form  of  a  goods,  as  well  as  the 
substance  of  it,  is  a  part  of  its  utility.  We  also 
readily  grant  that  the  normal  social  fashions 
and  tastes  have  much  to  do  in  creating  human 
wants  and  consequently  in  adding  utility  to 
material  forms.  While  all  this  is  readily 
granted,  we  contend  that  there  is  great  extrava- 
gance and  waste  in  many  of  the  forms  of  the 
utilities  which  we  consume. 

Wasteful   and   Extravagant    Consumption    for 
many  of  the  Higher  Wants. —  Not  only  do  we  have 


32       PRINCIPLES  OF  WEALTH  AND  WELFARE 

extravagance  and  waste,  and  to  an  enormous 
extent,  in  the  consumption  of  wealth  for  the 
lower  wants,  but  we  likewise  have  extravagance 
and  waste  in  the  consumption  of  wealth  for  the 
higher  wants,  for  those  of  development  and 
governmental  protection.  The  wants  of  these 
classes,  like  those  for  living,  are  at  times  ab- 
normally great,  and  to  satiate  them,  even  though 
without  waste,  means  an  enormous  consumption 
of  wealth.  The  satiation  of  these  wants,  like 
that  of  the  lower  wants,  is,  however,  often  left 
to  poor  judgment,  to  ignorance,  and  at  times 
to  fraud.  The  expenditures  of  many  of  our 
bodies  and  instruments  of  social  development 
and  protection  have  become  marvelously  large 
as  compared  with  the  actual  results  accruing 
therefrom.  The  amount  of  wealth  consumed 
annually  by  many  departments  in  our  munici- 
pal, state,  and  national  governments,  in  our 
educational  and  religious  institutions,  has 
grown  to  gigantic  proportions.  That  great 
results  have  come  from  this  enormous  consump- 
tion, we  cannot  deny ;  many  of  our  great  devel- 
opmental and  protective  wants  have  been 
satisfied,  at  least  in  large  measure.  That 
there  has  been,  on  the  other  hand,  much 
extravagance  and  waste  in  this  consumption, 
every  serious-minded  and  candid  observer 
must  admit 


WANTS  AND  THEIR  SATIATION  33 

Many  of  the  Higher  Wants  not  sufficiently 
Satiated ;  Disease  and  Death.  —  There  has  also 
been  a  great  lack  of  consumption  for  certain 
purposes  and  in  certain  cases.  Many  of  the 
higher  developmental  wants  have  either  not 
been  satisfied  at  all,  or  at  most  have  been  but 
to  a  slight  degree,  and  weakness,  inefficiency, 
disease,  and  death  have  been  the  inevitable 
results  of  such  a  lack  of  consumption.  Not  a 
few  are  the  instances  in  which  towns  and  cities 
have  not  satiated  their  wants  for  better  sewers 
and  cleaner  streets,  have  not  satiated  their 
wants  for  a  more  efficient  enforcement  of  health 
regulations,  have  not  supplied  their  need  for 
fire  departments;  and  disease,  death,  and  de- 
struction of  property  have  come  as  the  results 
of  such  a  lack  of  consumption.  Many  a  com- 
munity has  not  satiated  its  wants  for  educational 
facilities,  and  ignorance,  inefficiency,  and  even 
stagnation  have  come  not  only  as  a  result  but 
also  as  a  penalty.  American  history  everywhere 
bears  testimony  to  the  fact  that  individuals  and 
society  have  wants,  and  also  to  the  fact  that  the 
method  of  their  satiation  may  bring  great  wel- 
fare and  progress,  or  misery,  decay,  and  destruc- 
tion. We  repeat  that  man's  wants  and  their 
satiation  are  the  center  of  all  human  life. 


34       PRINCIPLES  OF  WEALTH  AND  WELFARE 

QUESTIONS 

(1)  Why  does  man  have  wants? 

(2)  For  what  does  man  have  wants? 

(3)  By  means  of  what  can  man  satiate  his  wants? 

(4)  How  much  wealth  should  you  consume  ? 

(5)  How  are  wealth  consumption  and  welfare  related  ? 


CHAPTER    II 

DEMAND,  VALUE,  PRICE 

Wants,  Demand, and  Value. —  In  our  discussion 
of  wants  and  their  satiation  we  have  very  fre- 
quently used  the  term  "demand."  We  have  seen 
that  needs  and  desires  create  wants,  and  that 
wants  create  a  demand  for  the  material  thing 
which  has  the  power  to  satiate  them.  Demand 
for  utilities,  therefore,  follows  in  consequence  of 
the  wants  for  them.  Without  wants  for  a  goods1 
there  is  no  demand  for  it.  Not  only  do  wants 
create  a  demand  for  a  thing,  but  they  also 
cause  activity  and  effort  to  be  put  forth  in  order 
to  obtain  this  thing.  Wants  are,  therefore,  not 
only  at  the  basis  of  the  consumption  of  wealth, 
but  also  at  the  basis  of  its  production.  Since 
wants  create  a  demand  for  a  goods,  they  have 
much  to  do  in  giving  value  to  this  goods.  The 
power  to  satisfy  human  wants  is,  however,  not 
the  only  force  necessary  to  a  goods  to  give  it 
utility  or  value.  It  must  exist  in  nature  in 

1  The  term  "goods"  means  a  certain  form  of  utilities,  as,  for 
instance,  sugar,  flour,  beef,  or  cotton  cloth. 

35 


36      PRINCIPLES  OF  WEALTH  AND  WELFARE 

quantities  small  enough  to  cause  effort  to  be 
put  forth  in  order  to  obtain  it.  Demand  for  a 
thing,  therefore,  in  connection  with  the  effort 
put  forth  to  get  possession  of  it,  gives  value, 
which  is  an  expression  of  the  utility  of  the 
thing.  Wants  create  demand,  and  demand, 
in  connection  with  effort,  gives  utility  or 
value. 

Consumer's  Value  and  Price.  —  Value  is,  how- 
ever, a  very  abstract  economic  measure,  and  in 
the  actual  business  world  it  has  a  concrete  ex- 
pression, a  yardstick,  which  we  call  price.  We 
have  the  consumer's  price,  which  is  the  measure^ 
of  the  value  he  assigns  to  a  goods.  We  also 
have  the  producer's  price,  which  is  the  measure 
of  the  value  he  assigns  to  a  goods.  In  a  very 
general  way  we  may  say  that  the  wants  and 
demand  of  the  consumer  for  a  goods  are  meas- 
ured by  the  price  which  he  is  willing  to  pay, 
though,  as  we  shall  later  see,  the  same  price,  one 
dollar  for  instance,  does  not  mean  exactly  the 
same  thing  to  all  consumers  under  all  circum- 
stances. While  the  amount  of  wealth  which 
an  individual  possesses  has  something  to  do  in 
changing  this  measuring  stick,  still  by  far  the 
most  important  force  in  the  consumer's  price  is 
his  demand.  The  price  which  the  consumer  is 
willing  to  pay  for  a  goods  which  can  satiate  his 
wants  is,  therefore,  in  the  main  a  fair  measure 


DEMAND,  VALUE,  PRICE  37 

of  his  wants  and  demand  for  the  goods  and  of 
the  value  he  assigns  to  it. 

Market  Value  and  Price.  —  The  price  which 
the  consumer  is  willing  to  pay  is,  however,  one 
thing;  that  which  the  producer  is  willing  to 
accept  for  his  goods  may  be  another  thing.  As 
we  shall  see  under  the  section  dealing  with  the 
marketing  of  goods,  these  two  prices  sooner  or 
later  come  to  a  point  /-of  equilibrium,  and  the 
resultant  of  this  equilibrium  is  the  market  price. 
The  producer  of  cotton,  the  farmer,  is  willing  to 
part  with  his  crop  at  ten  cents  a  pound.  The 
consumer  of  this  cotton,  the  manufacturer,  is 
willing  to  pay  nine  cents.  If  the  consumer  and 
the  producer  are  willing  to  compromise  with 
each  other  on  equal  terms,  there  will  be  a  market 
price  of  nine  and  one  half  cents ;  nine  and  one 
half  cents  on  one  side  of  the  scale  and  nine  and 
one  half  cents  on  the  other  side  will  come  to  an 
equilibrium.  Price,  which  is  but  a  concrete 
measure  of  value,  is,  therefore,  the  key  to  all 
the  many  and  wonderful  economic  forces  at 
work  in  the  consumer ;  it  can  unlock  all  of  his 
situations.  It  is  likewise  the  key  to  all  the 
forces,  whether  great  or  small,  which  are  at  work 
in  the  producer. 

Elasticity  of  Demand  and  Market  Price.  —  The 
wants,  and  consequently  the  demand,  for  a 
goods  are  constantly  changing.  The  living 


38       PRINCIPLES  OF  WEALTH  AND  WELFARE 

wants,  as  well  as  those  for  development  and 
governmental  protection,  are  ever  changing, 
not  only  in  their  form  but  also  in  their  degree. 
The  desires  of  the  consumer  are  elastic  to  a 
greater  or  less  extent,  and  his  demand  is  corre- 
spondingly elastic.  For  some  goods  the  demand 
of  the  consumer  is  more  elastic,  for  others  it  is 
less  elastic.  The  demand  for  a  few  articles, 
the  almost  absolutely  necessary  ones,  is  in  the 
main  constant  or  inelastic.  The  want  for  salt 
in  our  foods  is  practically  absolute ;  it  is  in 
reality  a  want  that  can  be  satiated  by  no  other 
commodity.  The  demand  for  such  a  food  is, 
therefore,  inelastic,  and  the  market  price  of  this 
goods  will  have  slight  effect  upon  the  demand 
for  it.  Salt  has  been  selling  on  the  market  for 
one  cent  per  pound.  Practically  the  same 
amount  will,  however,  be  consumed,  if  it  should 
rise  in  price  to  one  and  one  fourth  cents  per 
pound.  The  want  for  bread  is  universal  and  more 
or  less  constant.  The  demand  for  bread,  either 
wheat,  corn,  or  rye,  is,  therefore,  inelastic,  but 
for  bread  made  of  one  of  these  cereals, —  wheat, 
for  instance, —  it  is  comparatively  elastic.  If  the 
price  of  wheat  goes  up  as  compared  with  that 
of  corn,  less  wheat  bread  will  be  consumed 
and  more  corn  bread  will  be  demanded,  and 
vice  versa.  The  want  for  tea  or  coffee,  while 
not  universal,  is  nevertheless  very  prevalent. 


DEMAND,  VALUE,  PRICE  39 

The  demand  for  either  of  these  articles  is,  how- 
ever, very  elastic.  As  these  two  articles  supply 
almost  the  same  want  and  to  almost  an  equal 
degree  of  satisfaction,  the  change  from  the  use 
of  one  to  that  of  the  other  is  easy. 

These  two  illustrations  of  wants  which  are 
more  or  less  elastic  in  their  satiation  are  by  no 
means  exceptional.  The  consumer  has,  in  fact, 
a  great  and  varied  field  from  which  to  select 
the  goods  that  he  will  use  in  the  satiation  of 
his  wants ;  his  demands  are  in  actual  fact  largely 
elastic.  He  is  no  more  a  slave  to  the  producer 
of  goods  than  the  producer  of  these  goods  is  to 
the  consumer  of  them. 

General  Law  of  Demand  and  Market  Price.— The 
consumer's  demand  varies  more  or  less  with  the 
market  price  of  the  goods  which  he  desires.  If 
the  market  price  is  high,  he  in  the  main  de- 
mands less  of  these  goods,  and  the  fact  that  he 
demands  a  smaller  amount  tends  to  bring  their 
price  down.  If,  on  the  other  hand,  the  market 
price  of  certain  goods  is  low,  the  consumer  in 
the  main  demands  more  of  these  goods,  and  this 
increase  in  his  demand  tends  to  increase  their 
price.  We  may,  therefore,  say  that  demand 
varies  as  the  wants  vary.  If  the  wants  become 
greater,  the  demand  becomes  greater.  We  may 
also  say  that  demand  varies  at  the  same  time  as 
the  price  of  goods,  but  not  directly  with  the 


40      PRINCIPLES  OF  WEALTH  AND  WELFARE 

price.  This  is  the  general  law  or  tendency  of 
demand:  (i)  It  varies  directly  with  the  wants, 
and  (2)  inversely  with  the  price.  This  general 
law  does  not,  of  course,  apply  to  all  cases  and 
under  all  circumstances.  We  state  it  as  being 
only  a  general  tendency.  For  the  very  rich  this 
law  does  not  apply,  at  least  fully.  The  man 
possessed  of  great  wealth,  as  a  rule,  consumes 
whatever  his  wants  call  for,  irrespective  of 
whether  the  price  is  higher  or  lower,  is  in- 
creasing or  decreasing.  Likewise  the  demand 
of  the  very  poor  is  in  the  main  inelastic.  They 
never  consume  more  than  is  absolutely  neces- 
sary, though  the  price  of  certain  goods  should 
become  lower. 

The  Principle  of  the  Satiation  of  Wants ;  Demand, 
Value,  and  Price.  —  We  have  now  considered 
the  consumption  of  wealth  from  the  standpoint 
of  human  wants  and  their  satiation,  and  also 
from  the  standpoint  of  the  value  which  these 
wants  create  in  certain  material  forms.  The 
amount  of  wealth  consumed,  as  well  as  the 
relations  of  the  demand  for  a  certain  goods  to 
the  price  of  this  goods,  we  have  also  treated.  It 
is  now  necessary  for  us  to  examine  the  mental 
principles  underlying  all  of  the  many  aspects  of 
the  consumption  of  wealth.  We  have  said  that 
the  reason  for  consumption  is  a  want  and  the 
desire  to  satiate  it  by  means  of  a  certain  form 


DEMAND,  VALUE,  PRICE  41 

and  a  certain  amount  of  wealth.  We  have  seen 
that  the  wants  of  the  community  as  a  whole  are 
exceedingly  varied  in  kind  and  degree  of  inten- 
sity, and  this  is  also  the  true  characteristic  of  the 
wants  of  individuals.  The  community  and  the 
individual  alike  have  at  one  time  wants  of 
certain  forms  and  degrees ;  at  other  times  their 
wants  are  of  very  different  forms  and  degrees. 
Is  there  a  principle  of  the  satiation  of  wants 
by  means  of  the  use  of  wealth  ?  What  is  it  ? 
Let  us  consider  the  degrees  of  intensity  of  a 
single  want  in  a  single  individual,  in  order  that 
we  may  discover  the  mental  principle  involved. 
The  satiation  of  the  wants  for  bread  and  meat, 
for  instance,  when  analyzed,  will  reveal  to  us  a 
principle  which  applies  throughout  the  realm  of 
human  wants. 

Decrease  in  the  Utility  of  and  Demand  for  Succes- 
sive Units  of  Wealth  illustrated  in  the  Eating  of 
Bread  and  Meat.  —  At  the  moment  when  the 
individual  begins  to  satisfy  his  desire  for  bread, 
his  want  is  then  strongest,  is  at  its  maximum  in- 
tensity. The  more  bread  he  eats  at  one  time,  the 
less  and  less  strong  are  his  want  and  demand  for 
bread,  until  he  finally  comes  to  a  point  where  his 
want  for  it  is  entirely  satisfied  and  his  present 
demand  for  it  disappears.  At  this  point  he  will 
pay  no  price  for  bread  for  his  own  immediate 
consumption.  At  the  moment  when  he  begins 


42       PRINCIPLES  OF  WEALTH  AND  WELFARE 

to  eat,  his  want  is  greatest,  and  consequently 
the  first  mouthful  of  bread  is  the  most  useful  to 
him.  It  gives  him  more  pleasure  than  the  second 
mouthful,  the  second  more  pleasure  than  the 
third  mouthful,  and  likewise  to  the  time  when 
he  will  not  eat  another  morsel.  The  first 
mouthful  possesses  for  him  the  maximum  of 
utility,  while  the  last  mouthful  possesses  the 
minimum  of  utility.  To  take  another  mouthful 
after  he  has  fully  satiated  his  want  for  bread 
will  bring  him  something  of  discomfort.  This 
last  mouthful  which  he  cpnsumes  —  the  last  one 
to  bring  him  pleasure  —  we  may  call  the  mar- 
ginal unit  or  mouthful.  The  utility  of  this 
last  unit  or  mouthful  is  not  only  the  turning 
point  in  his  consumption  of  bread,  but  it  is 
also  the  turning  point  in  his  present  demand 
for  bread  and  the  price  he  will  pay  for  it  for 
present  consumption. 

To  be  sure,  our  consumer  will  in  a  few  hours 
need  more  bread;  that  which  he  has  eaten  is 
soon  consumed  in  the  furnace  of  his  muscular 
and  mental  activity.  When,  however,  he  again 
begins  to  eat,  the  same  mental  principle  is  at 
work  as  was  in  the  first  instance.  We  have  said 
that,  at  the  point  of  the  complete  satiation  of  his 
want  for  bread,  he  has  no  present  demand  for 
bread  and  will  pay  no  price  for  bread  to  be  con- 
sumed at  this  very  moment.  What  of  his  de- 


DEMAND,  VALUE,  PRICE  43 

mand  at  this  moment  for  meat  ?  When  he  has 
fully  satiated  his  want  for  bread,  has  he  also 
satiated  his  desire  for  meat  ?  No.  He  has  con- 
sumed no  meat,  and  it  may  be  that  this  want, 
which  is  really  a  new  want,  an  entirely  different 
want  from  that  for  bread,  is  just  at  this  very  point 
maximum  in  its  intensity.  And  its  satiation  is 
according  to  the  same  mental  principle  as  that 
which  we  have  just  outlined.  The  utility  of  the 
last  or  marginal  mouthful  of  meat,  just  as  of 
bread,  is  the  one  which  determines  the  con- 
sumer's present  demand  for  meat,  and  also  the 
price  which  the  consumer  will  pay  for  meat 
to  be  consumed  at  the  point  of  his  complete 
satiation. 

Decrease  in  the  Utility  of  and  Demand  for  Succes- 
sive Units  of  Wealth  Universal.  —  This  principle 
of  the  decrease  in  the  utility  of  successive  units 
of  goods  consumed  is  universal.  It  is  true  of 
the  satiation  of  all  kinds  of  wants  which  the 
individual  has,  irrespective  of  their  form  or 
intensity.  It  is  true  of  his  developmental  and 
protective  wants,  as  well  as  his  wants  for  food, 
clothing,  and  shelter.  This  same  principle 
applies  to  the  satiation  of  the  wants  of  the 
community,  though  in  the  case  of  the  larger 
economic  body  the  decrease  in  the  utility  or 
value  of  the  successive  units  of  goods  is  by  no 
means  so  rapid  as  in  the  instances  of  our 


44       PRINCIPLES  OF  WEALTH  AND  WELFARE 

illustrations.  In  fact,  in  the  two  cases  which 
we  have  just  analyzed,  we  have  to  an  extent 
assumed  that  bread  and  meat  are  very  perish- 
able articles  of  consumption,  and  that  in  con- 
sequence the  demand  for  them  is  immediate, 
at  the  very  time  of  their  consumption.  Most 
certainly  this  assumption  is  not  in  actual 
economic  life  entirely  correct,  but  the  cor- 
rectness or  incorrectness  of  the  assumption 
has  little  to  do  with  the  mental  principle 
which  we  have  described. 

This  principle,  moreover,  applies,  to  a  con- 
siderable extent,  to  the  want  for  money  which 
represents  the  most  permanent  forms  of  wealth. 
To  the  normal  individual,  who  for  a  time  has 
no  money,  the  want  for  money  is  maximum. 
As  he  obtains  more  and  more  of  it,  unit  by  unit, 
or  dollar  by  dollar,  his  desire  for  it  becomes 
less  intense,  until  finally  his  want  for  it  is  largely 
if  not  entirely  satisfied.  In  this  case  the  de- 
crease in  the  utility  of  successive  units  is  very 
slow,  much  slower  than  in  the  illustrations  con- 
sidered above.  Money  represents  the  more  per- 
manent forms  of  wealth,  in  fact  all  forms  of  it, 
and  can  help  the  individual  and  society  to 
satiate  their  wants  of  all  imaginable  shapes  and 
degrees.  For  this  reason  the  decrease  in  the 
value  of  its  successive  units  is  exceedingly  slow. 
The  slowness  of  the  decrease  does  not,  how- 


DEMAND,  VALUE,  PRICE 


45 


ever,  set  aside  the  principle  of  which  we  are 
speaking.1 

How  to  distribute  Wealth  for  Consumption: 
Equal  Marginal  Pleasure  in  satiating  Every  Want. 
—  The  individual  and  society,  whether  they  will 
it  or  not,  are  controlled  by  this  great  and  univer- 
sal principle  in  all  their  consumption  of  wealth. 
There  is,  as  we  have  said,  more  or  less  of 
pleasure  in  all  consumption,  unless  it  be  in  the 
wasteful  and  in- 
jurious uses  of 
wealth ;  the  sa- 
tiation of  normal 


1  Let  us  illustrate 
the  decrease  in  the 
utility  of  and  demand 
for  successive  units  of 
goods  by  the  following 
diagrams :  — 

Figure  (i)  repre- 
sents a  great  and  b 
rapid  decrease,  while 
figure  (2)  represents 
only  a  slight  decrease. 
The  line  ab  repre- 
sents the  utility  of 
and  demand  for  the 
first  unit  of  goods, 
alb1  the  second  unit, 
the  third  unit, 
the  fourth  unit, 
the  seventh 
unit. 


b' 

b" 

b"1' 

IV 

D 

b"r 

2       3       4 
i      a«      a»      a 

567 
in    ajv    av     avi 

(0 

4        5 
a"     a!"     a.tf 

(2) 


ayi 


46       PRINCIPLES  OF  WEALTH  AND  WELFARE 


wants  of  any  character  always  brings  pleas- 
ure to  man.  The  amount  of  pleasure  de- 
pends upon  the  strength  of  the  want  which 
the  individual  has,  and  this  is,  as  we  have 
seen,  the  resultant  of  many  forces  —  of  nature, 
society,  and  inheritance.  The  problems  of  con- 
sumption are,  therefore,  to  find  out  the  exact 
amount  of  wealth  which  will  bring  maximum 
pleasure,  not  only  in  the  satiation  of  one  par- 
ticular want,  but  also  maximum  pleasure  in  the 
satiation  of  all  wants.  If  the  individual  in  con- 
suming his  wealth  should  spend  for  food,  cloth- 
ing, and  housing,  and  all  his  developmental 
and  protective  wants,  the  exact  quantity  of 
wealth  which  will  cause  his  marginal  pleasure 
in  each  of  these  wants  to  be  the  same, 
then  he  has  solved  a  great  and  most  difficult 
problem ;  then  he  has  brought  to  himself 
and  the  community  in  which  he  lives  and  acts 
the  maximum  of  welfare  which  may  come 
from  the  consumption  of  wealth. 

Consumption  of  Wealth 
and  its  Production;  their 
Relations.1  —  We  have 
said  that  there  should 
be  no  consumption  of 

1  Let  us  illustrate  the  relations 
of  the  consumption  and  produc- 
tion of  wealth  by  the  accompanying 
diagram. 


DEMAND,  VALUE,  PRICE  47 

wealth  unless  it  be  for  the  sake  of  the  normal 
pleasure  and  welfare  of  the  individual  and 
society,  for  health  and  efficiency.  There 
should  likewise  be  no  consumption  of  wealth 
apart  from  the  view-point  of  its  production. 
While  the  want  for  material  goods  comes  first, 
the  supply  of  these  goods  is  just  as  vitally 
important  as  the  want  for  them.  In  the  main, 
therefore,  no  man  should  consume  more  than 
he  produces,  though  unfortunately  for  himself 
and  especially  for  society  many  men  do.  De- 
mand for  goods  and  the  supply  of  them  more 
or  less  balance  each  other.  We  have  con- 
sumer's demand,  value,  and  price  for  every 
conceivable  article  produced,  and  the  price 
which  the  consumer  is  willing  to  pay  for  a 
goods  is  the  mighty  motive  force  of  its  pro- 
duction. The  producer  is  always  willing 
to  meet  the  demand  of  the  consumer,  in 
order  to  get  from  him  the  price  which  he  is 
willing  to  pay.  Consumption,  the  satiation  of 
the  many  and  varied  human  wants,  in  its  very 
nature  and  purpose,  assumes  production,  and 
likewise  the  production  of  wealth  is  essen- 
tially for  the  sake  of  its  consumption.  The 
forces,  forms,  and  principles  of  consumption 
are,  as  we  have  seen,  the  results  of  nature  and 
of  society  —  the  products  of  natural  and  social 
forces  working  upon  the  individual's  physical 


48       PRINCIPLES  OF  WEALTH  AND  WELFARE 

and  mental  elements.  So  also  are  the  forces, 
forms,  and  principles  of  the  production  of 
wealth.  These  are  in  part  the  results  of  the 
demand  of  the  consumer,  while  in  other  parts 
they  are  the  products  of  nature  and  of  society. 

Production  a  Part  of  Consumption,  and  Consump- 
tion a  Part  of  Production.  —  Not  only  is  pro- 
duction a  necessary  result  of  consumption, 
but  production  is  also  in  itself  essentially  a 
process  of  consumption.  Every  producer  is 
always  a  consumer  of  finished  products  and, 
therefore,  has  his  wants  for  these  products.  And 
as  a  producer  he  has  wants  for  raw  material,  for 
labor,  for  land,  for  capital,  and  for  business 
management,  in  all  of  their  various  forms.  As 
a  consumer,  he  consumes  the  higher  forms  of 
wealth  in  order  that  he  may  live  and  become 
more  efficient,  and  as  a  producer  he  consumes 
the  lower  forms  of  wealth  in  order  to  create  the 
forms  of  finished  goods,  which  he  as  a  con- 
sumer and  the  other  consumers  are  ever  demand- 
ing. Let  us  illustrate  this  point.  The  consumer 
calls  upon  the  merchant  for  a  yard  of  cotton 
goods.  The  merchant,  in  order  to  supply  the 
demand  of  the  consumer,  must  make  use  of  the 
cotton  manufacturer,  the  transportation  agent, 
and  the  cotton  farmer.  The  merchant  in  pro- 
ducing the  cotton  fabric  —  in  placing  it  at 
the  door  of  the  consumer  —  consumes,  in  a 


DEMAND,  VALUE,  PRICE  49 

sense,  the  products  of  the  manufacturer,  trans- 
portation agent,  and  farmer.  Production  is, 
therefore,  in  large  part  a  process  of  consumption, 
and  consumption  a  part  of  the  process  of  pro- 
duction. In  the  actual  business  world  these 
two  sets  of  forces  are  always  working  together, 
connected  and  interconnected,  but  for  the  sake 
of  clearness  of  thought,  and  especially  for  clear- 
ness of  statement,  we  shall  now  consider  them 
under  two  separate  heads.  Later,  under  the 
section  devoted  to  market  price,  we  shall  con- 
sider them  together. 

QUESTIONS 

(1)  What  do  you  mean  by  demand? 

(2)  What  is  value?     How  are  value  and  price  related? 

(3)  Does  the  demand  for  beef  vary  with  the  price  of 
beef? 

(4)  How  much  wealth  will  a  man  yearly  consume  in  the 
shape   of  salt,  beef,    flour,   houses,   fuel,   clothing,   travel, 
or  education? 

(5)  If  you  have  wants  and  demands  for  a  certain  goods, 
will  this  goods  be  supplied  to  you  ? 

(6)  If  your  wants  and  demands  are  supplied,  is  your 
welfare  increased? 


SECTION    II 

THE   PRODUCTION   OF   WEALTH  —  WELFARE 

A.   INTRODUCTION 

CHAPTER    I 

PRODUCTION  I     ITS    NATURE    AND   AGENTS 

General  Nature  of  Production ;  Nature  and  Man 
work  Together.  —  We  have  already  seen  that 
the  process  of  producing  forms  of  wealth  or 
utilities  follows  their  consumption,  and  also 
that  in  many  respects  production  is  a  part  of 
the  process  of  consumption  and  that  consump- 
tion is  a  part  of  the  process  of  production. 
We  have  also  seen  that  the  forces  of  the  con- 
sumer create  the  demand  for  utilities,  and  to  a 
large  extent  the  utilities  themselves,  while  the 
aim  of  the  producer  is  to  create  the  supply  of 
these  utilities,  to  create  something  which  has  the 
power  of  satiating  the  wants  of  the  consumer. 
As  nature  and  society  are  largely  responsible 
for  these  wants  in  the  individual,  so  nature 
and  society  are  in  large  part  the  producers 
of  the  utilities  which  can  satiate  these  wants. 

Nature  is  a  mighty  element  in  the  production 
of  all  the  conceivable  forms  of  wealth,  but  man 

5' 


52       PRINCIPLES  OF  WEALTH  AND  WELFARE 

must  perform  a  certain  part  in  the  process  of 
producing  wealth  in  any  form.  If  nature  of 
her  own  forces  supplied  all  the  goods  needed 
by  man  as  a  consumer,  if  it  were  not  necessary 
for  man  as  a  consumer  to  put  forth  some  activ- 
ity and  effort  to  satiate  his  wants,  there  would 
be  absolutely  no  wealth  as  we  understand  it. 
A  material  thing  must  possess  value  before  it 
becomes  wealth ;  and  this  value  is  in  large  part 
created  by  man,  by  his  wants  for  the  thing  and 
by  his  efforts  put  forth  in  order  to  obtain 
possession  of  it.  The  production  of  wealth  or 
articles  of  value  is,  therefore,  a  more  or  less 
complicated  process,  and  the  complexity  of 
production  depends  largely  upon  the  form  and 
intensity  of  the  wants  on  the  part  of  the  con- 
sumer. It  also  to  a  great  extent  depends  upon 
the  supply  of  the  agents  and  instruments  of 
production  which  nature  and  society  bring  to 
the  individual  as  a  producer. 

Various  Demands  and  Various  Products.  —  As 
we  have  seen,  the  wants  of  the  consumer  cover 
a  wide,  even  a  vast,  range.  In  order  to  satiate 
these  wants,  the  producer  must  in  consequence 
create  an  enormous  variety  of  products  or  utili- 
ties. We  have  the  consumer  on  the  coast  of 
the  Carolinas,  for  instance,  whose  wants  for  food 
do  not  extend  beyond  those  of  wild  fruits,  a 
few  cereals  and  vegetables,  fish  and  game.  The 


PRODUCTION:   ITS  NATURE  AND  AGENTS       53 

producer  in  this  stage  of  wants  must  needs 
make  but  very  few  and  simple  products.  We 
have  the  consumer  whose  wants  for  food  de- 
mand a  few  cereals,  vegetables,  fruits,  and  meats 
of  hog,  cow,  or  sheep,  and  to  produce  for  him 
is  as  a  rule  a  simple  process.  We  also  have 
the  consumer  whose  wants  for  living,  develop- 
ment, and  protection  demand  articles  in  the 
production  of  which  all  the  myriad  forces  of 
nature  and  all  the  ingenuity  of  man  as  a  pro- 
ducer are  combined. 

Producer  and  Consumer  the  Servants  and  Masters 
of  Nature  and  her  Forces.  —  In  order  to  supply 
the  demands  of  the  consumer,  man,  as  a  pro- 
ducer, must  work  upon  the  great  forces  of 
nature  by  means  of  his  own  simple  muscular 
and  nervous  energy,  and  by  means  of  a  certain 
amount  of  the  forces  of  nature  used  as  a  motive 
power.  In  the  earlier  stages  of  economic  life 
the  producer  has  not  learned  to  use  the  forces 
of  nature  as  motive  power,  at  least  to  any  ex- 
tent, and  he  is  consequently  largely  dependent 
upon  his  own  energy.  But  the  individual's 
muscular  energy  unaided  by  other  forces  is 
insignificant  in  the  face  of  the  great  natural 
forces.  The  producer,  who  is  thus  dependent 
upon  his  own  energy  alone,  is  largely  the  slave 
of  nature ;  and  at  times  she  willingly  offers  to 
man  her  bounties  in  great  quantities ;  at  other 


54      PRINCIPLES  OF  WEALTH  AND  WELFARE 


times  she  holds  fast  to  her  own.  In  such  a 
stage  of  economic  life  the  consumer,  as  well  as 
the  producer,  is  almost  entirely  dependent  upon 
nature.  At  times  his  simple  wants  are  satisfied 
to  the  utmost,  while  at  other  moments  he  must 
needs  go  hungry  and  ill  clad. 

When,  however,  the  producer  begins  to  lay 
hold  of  the  mighty  forces  of  nature  and  to  use 
them,  as  well  as  his  own  muscular  and  nervous 
energy,  he  is  no  longer  a  slave.  When  the 
consumer  does  not  use  all  of  his  wealth  for 
present  satiation,  when  he  reserves  some  of  it 
for  a  future  use,  either  for  the  satiation  of  his 
future  wants  or  for  making  instruments  for  the 
production  of  more  wealth,  when  the  consumer 
has  begun  to  do  this  he  is  no  longer  the  slave 
of  nature.  Man  as  both  a  producer  and  a  con- 
sumer is  now  liberating  himself  and  is  even 
becoming  the  master  over  great  nature  and  her 
marvelous  forces. 

Agents  of  Production  in  General  :  Labor,  Land, 
Capital,  Business  Manage- 
ment.1 —  The  agents  of 
production  are,  therefore, 

1The  relations  of  these  four 
agents  may  be  easily  understood 
by  examining  the  accompanying 
diagram. 

The  square  represents  the 
realm  of  the  production  of  wealth. 


PRODUCTION:    ITS  NATURE  AND  AGENTS       55 

man  and  nature.  Nature  acts  upon  man,  and 
he  becomes  a  consumer.  Man  acts  upon  nature, 
and  we  have  the  process  of  production.  Let  us, 
for  the  sake  of  clearness  of  thought  and  exposi- 
tion, subdivide  these  two  agents.  In  our  discus- 
sions we  shall  consider  four  agents,  more  or  less 
distinct  from  each  other,  —  labor,  land,  capital, 
and  business  management.  In  actual  business 
life  labor  and  business  management  are  more 
or  less  intimately  connected ;  they  are  aspects 
of  one  great  force  —  man.  Land  and  capital 
are  also  very  closely  allied,  though  by  the 
masses  of  people  they  are  thought  of  as  being 
two  separate  forces.  In  all  the  aspects  of  the 
production  of  wealth  there  is  a  certain  amount, 
more  or  less,  of  each  of  these  agents.  In  every 
article  produced,  to  satiate  man's  wants,  there 
is  a  part  of  it  which  each  of  these  agents  has 
created.  The  man  who  tills  the  soil,  and  by  the 
aid  of  nature  makes  certain  simple  products, 
uses  to  some  extent  labor  and  business  man- 
agement, as  well  as  land  and  capital.  In  the 
transportation  service,  which  carries  a  man  from 
New  York  to  Chicago  in  eighteen  hours,  all 
these  agents  are  at  work.  In  fact,  the  farmer, 
the  miner,  the  manufacturer,  the  transportation 
agent,  and  the  merchant,  of  whatsoever  line, 
and  to  whatsoever  degree,  all  must  make  use 
of  these  four  agents. 


56      PRINCIPLES  OF  WEALTH  AND  WELFARE 

And  we  shall  treat  these  agents  as  being 
really  commodities,  which  are  produced  and 
consumed,  bought  and  sold.  They  are  gov- 
erned in  their  quantity,  quality,  and  price  by 
the  same  general  forces  and  in  the  same  gen- 
eral way  as  are  all  other  commodities. 


B.  AGENTS   OF   PRODUCTION 
CHAPTER  II 

LABOR    A    PRODUCING    AGENT 

Labor  a  Producing  Agent.  —  Though  great  na- 
ture and  her  forces  come  first  in  point  of  time, 
it  is  the  marvelous  being,  man,  who  stands  first 
in  point  of  importance.  Man  and  the  satiation 
of  his  wants  are  the  most  vital  forces  in  all 
aspects  of  wealth  consumption.  They  are  also 
the  most  vital  forces  in  wealth  production. 
Man,  his  welfare,  and  activity,  these  are  the 
sources  from  which  springs  all  economic  life. 
That  labor,  and  by  this  term  we  mean  labor  of 
the  ordinary  type,  should  have  the  first  place 
in  our  consideration  of  the  agents  of  produc- 
tion is,  therefore,  most  natural  and  rational. 

Labor,  How  Productive  :  (a)  Individual  Ca- 
pacity. —  We  have  seen  that  the  individual  as  a 
consumer  of  wealth  is  surrounded  by  the  forces 
of  natural  and  social  environment  and  heredity. 
So  likewise  is  the  individual  as  a  producer  of 
wealth.  Not  only  is  he  surrounded  throughout 
his  life  by  these  forces,  but  he  is  also  influenced 
profoundly  by  them.  His  capacity  for  economic 

57 


58       PRINCIPLES  OF  WEALTH  AND  WELFARE 

activity  and  effort,  as  well  as  his  capacity  for  eco- 
nomic enjoyment  and  welfare,  are,  therefore,  only 
in  part  of  his  own  making.  There  is,  however, 
a  part  of  his  capacity  which  is  his  own,  irrespec- 
tive of  his  surroundings.  But  what  is  this  part 
which  is  his  own  ?  Let  us  answer  this  question 
in  the  following  paragraphs. 

The  Individual's  Strength,  Energy,  and  Endur- 
ance. — We  well  know  that  the  laborer's  efficiency 
as  a  producing  agent  depends  in  large  measure 
upon  the  strength,  energy,  and  endurance  of  his 
physical  parts  —  his  body.  But  these  qualities 
in  turn  depend,  to  a  great  extent,  (i)  upon  his 
inheritance,  the  muscular  and  nervous  powers  and 
tendencies  which  have  been  transmitted  to  him 
from  his  ancestors.  They  also  depend  (2)  upon 
the  nourishment  which  they  have  received  before 
the  time  when  the  laborer  becomes  sufficiently 
strong  to  produce  utilities  for  his  own  consump- 
tion. These  qualities  likewise  depend  for  their 
efficiency  (3)  upon  the  care  which  the  laborer 
himself  bestows  upon  them ;  they  depend  upon 
the  extent  to  which  he  properly  feeds,  clothes,  and 
shelters  them,  or  upon  the  quantity  and  quality 
of  the  goods  he  himself  consumes.  The  treat- 
ment which  the  laborer  gives  to  himself  is,  how- 
ever, largely  influenced  by  (4)  the  real  wages 
which  he  secures  as  a  result  of  his  work.  His 
wages  depend,  as  we  shall  see  under  the  head 


LABOR  A  PRODUCING  AGENT  59 

of  the  distribution  of  wealth,  upon  his  own 
efficiency,  upon  the  total  supply  of  labor  as 
compared  with  the  demand  for  it,  and  upon  the 
honesty  of  the  employer  of  his  services. 

The  laborer  is  influenced  not  only  by  the 
external  forces  of  inheritance  and  of  economic 
and  social  environment,  but  also  by  the 
(5)  climate  and  conditions  of  health  in  which  he 
lives  and  works.  Climate  gives  him  more  vigor 
and  energy,  or  it  makes  him  lazy.  It  likewise 
causes  him  to  supply  his  body  with  better  food, 
clothing,  and  shelter,  or  permits  him  to  eat  less, 
wear  little  clothing,  and  live  in  a  simple  hut.  The 
climate  of  Massachusetts  unquestionably  makes 
a  laborer  more  energetic,  while  that  of  Louisiana 
makes  him  less  active.  (6)  Life  in  a  crowded 
city,  certainly  in  its  most  densely  populated  and 
squalid  portions,  has  great  and  profound  influ- 
ence upon  the  efficiency  of  the  laborer  as  a 
producer  of  wealth.  Here  vitiated  air  and  lack 
of  sunlight,  to  say  nothing  of  direst  poverty 
and  extreme  dissipation  which  at  times  prevail 
in  such  locations,  —  these  sap  his  vitality,  and 
undermine  his  energy  and  endurance. 

The  Individual's  Intelligence,  Judgment,  and 
Ambition.  —  These  physical  qualities,  while  fun- 
damentally necessary  for  efficiency,  have  need  of 
a  guiding  force.  Pure  muscular  strength  and 
energy  without  such  a  guide  can  produce  but 


60      PRINCIPLES  OF  WEALTH  AND  WELFARE 

little.  The  laborer  must  also  have  a  brain,  as 
well  as  a  body,  before  he  can  become  an  efficient 
producing  agent ;  he  must  have  keen  intelligence 
and  sound  judgment,  as  well  as  physical  strength 
and  energy.  There  is,  moreover,  another  mental 
quality  which  adds  greatly  to  the  efficiency  of 
the  laborer  —  ambition.  This  is  not  a  regula- 
tive force,  but  a  stimulative  one ;  it  is  one  that 
drives  on  to  further  and  greater  effort.  All 
these  mental  faculties  in  the  laborer,  while  they 
greatly  influence  the  physical  ones,  are  in  turn 
profoundly  influenced  by  them;  the  health, 
strength,  and  energy  of  the  individual  have 
much  to  do  with  his  intelligence,  judgment, 
and  ambition.  The  mental  qualities  of  the 
laborer  are,  therefore,  in  large  part  the  product 
of  his  physical  faculties.  They  are  also  in  large 
part  the  resultant  of  an  educational  process. 

Our  public  educational  systems  have  been  one 
of  our  greatest  economic  forces.  They  have 
profoundly  impressed  and  shaped  the  efficiency 
of  the  laborer,  have  added  to  his  intelligence 
and  judgment,  have  given  him  the  ability  to 
look  far  and  wide  into  the  present  and  future, 
and  have  created  within  him  both  ambition  and 
imagination. 

The  Individual's  Imagination.  —  So  long  has 
it  been  our  habit  to  confuse  imagination,  a  truly 
great  and  creative  force,  with  wild  and  un- 


LABOR  A  PRODUCING  AGENT  6 1 

controlled  mental  traits,  that  we  condemn  the 
laborer  who  possesses  it.  Such  condemnation 
is,  however,  incorrect  and  unsound.  It  dis- 
courages the  culture  of  one  of  the  greatest  of 
all  the  mental  forces  which  are  at  work  in  the 
whole  economic  realm.  Imagination  in  the 
business  world  is  fundamentally  necessary. 
All  forms  and  qualities  of  goods  are  produced 
according  to  some  pattern,  and  this  model  is  the 
result  of  the  imaginative  force.  All  kinds  of 
organization  in  business  activities  are  likewise 
constructed  first  in  the  mind  of  man.  Muscular 
energy  is  necessary  in  all  aspects  of  production  J 
it  is  in  itself  a  productive  force.  But  when 
directed  and  stimulated  by  a  brain  full  of 
intelligence,  judgment,  and  imagination,  it  is  a 
thousand  times,  yes,  a  million  times,  more  pro- 
ductive. It  is  the  possession  of  such  a  brain  as 
this  that  causes  one  laborer  to  rise  in  efficiency 
far  above  another,  though  both  may  be  of  the 
same  physical  energy,  that  causes  a  great  cap- 
tain of  industry,  a  great  manager  of  all  the 
agents  and  forces  of  production,  to  come  up  from 
the  lowest  ranks  of  common  labor.  It  is  such 
a  brain  as  this  that  causes  a  Carnegie  or  a 
Rockefeller  to  rise  from  the  rank  and  file  of  the 
laborers. 

Labor,  How  Productive :   (b)  Method  of  using 
Individual  Capacity.  —  We  have  said  that  labor 


62       PRINCIPLES  OF  WEALTH  AND  WELFARE 

as  a  producing  agent  is  a  commodity,  and  that  it 
is  bought  and  sold  in  the  main  according  to  the 
same  principles  as  are  ordinary  goods.  Being 
a  commodity,  labor  is  under  competition,  more 
or  less  depending  upon  the  grade  of  efficiency 
and  the  special  line  of  work.  As  a  rule  one 
laborer  competes  with  another  laborer,  and  this 
condition  is  largely  the  true  one  in  all  groups 
and  subgroups  of  work  and  in  all  grades  of 
efficiency  of  service.  This  does  not  mean  that 
a  laborer  who  is  skilled  in  a  particular  field  of 
work  competes  with  those  who  have  no  skill  in 
this  field.  It  does  mean,  however,  that  all  the 
laborers  who  are  skilled  in  the  same  field  and 
are  working  in  that  field  are  competing  with 
each  other.  Not  only  does  labor  compete  with 
labor,  but  labor  is  also  competing  with  the  great 
forces  of  nature  and  with  capital  as  producing 
agents.  Capital,  in  the  shape  of  machinery,  has 
been  the  greatest  competitor  which  the  laborer 
has  perhaps  ever  had.  The  employer  of  the 
agents  of  production,  usually  called  the  business 
manager,  is  ever  applying  the  principle  of  sub- 
stitution, with  the  view  of  producing  his  goods 
at  a  cheaper  cost  and  thereby  making  greater 
profits.  He  substitutes  labor  for  capital  and 
capital  for  labor.  He  at  one  time  uses  more 
labor  and  less  machinery ;  at  another  time  less 
labor  and  more  machinery. 


LABOR  A  PRODUCING  AGENT  63 

This  competition  of  labor  with  labor  and  of 
labor  with  capital,  while  in  some  respects  it  tends 
to  stimulate  the  laborer  to  greater  effort  and 
efficiency  as  a  producer,  in  many  cases  brings 
hardship  to  him.  In  this  competition,  which  at 
times  assumes  bitter  and  hostile  aspects,  the 
strongest  in  the  main  survives;  and  we  mean 
by  the  strongest  not  necessarily  the  best  man  in 
himself,  but  the  one  who  can  use  his  powers  and 
his  environment  to  the  best  advantage  to  him- 
self and  perhaps  to  society.  The  method  of 
using  his  labor,  especially  in  selling  it  to  the 
employer  of  it,  is,  therefore,  of  great  and  vital 
importance  to  the  laborer.  The  method,  which 
has  so  far  been  of  most  advantage  to  the  laborer 
in  his  attempts  to  stand  up  under  the  forces  of 
competition  and  to  sell  his  services  at  a  higher 
price,  is  combination.  This  method  gives  the 
laborer  not  only  a  great  advantage  in  selling  his 
services  to  the  employer,  but  also  a  distinct 
advantage  in  stimulating  him  to  develop  his 
own  capacity.  By  means  of  this  method  the 
laborer's  services  are  managed  on  the  labor 
market  by  the  maximum  of  skill.  By  means  of 
the  trades  unions,  or  some  other  organization  of 
labor,  the  laborer  can  also  make  himself  a  more 
efficient  producer.  Combination  is  the  method 
which  brings  strength  and  efficiency  to  all  the 
agents  of  production,  to  the  employer  or  business 


64      PRINCIPLES  OF  WEALTH  AND  WELFARE 

manager,  as  well  as  to  the  common  worker, 
though  such  a  method  may  at  times  bring  serious 
disturbances  into  the  business  world. 

Labor,  How  Productive:  (c)  Amount  of  Labor. 
—  The  total  productiveness  of  labor  depends 
not  only  upon  the  individual's  capacity  and 
the  method  he  uses  in  employing  his  produc- 
tive powers,  but  also  upon  the  total  amount  of 
labor  in  existence.  The  size  of  the  labor  mar- 
ket in  any  locality  largely  determines  the  ability 
of  that  locality  to  produce  wealth,  and  likewise 
its  ability  to  consume  it.  The  efficiency  and 
quantity  of  labor  are  unquestionably  great  and 
fundamental  elements  in  a  nation's  prosper- 
ity and  progress.  We  have  already  spoken  of 
the  sources  of  efficiency.  Let  us  now  consider 
the  sources  of  the  quantity  of  labor.  The 
quantity  of  labor  for  any  locality  depends  upon 
the  natural  growth  of  population,  the  excess  of 
births  over  deaths,  and  also  upon  the  migration 
of  population.  To  the  United  States,  for  in- 
stance, more  than  twenty-two  million  souls  have 
come  from  other  countries  since  1821.  This 
increase  by  migration  has  been  enormously 
large,  to  say  nothing  of  the  great  excess  of 
births  over  deaths.  For  those  countries  which 
are  wholly  unaffected  by  the  forces  of  migra- 
tion, there  is,  of  course,  but  one  source  of  the 
quantity  of  labor  —  more  births  than  deaths. 


LABOR  A  PRODUCING  AGENT  65 

And  this  population  by  virtue  of  natural  growth, 
in  consequence  of  an  excess  of  births  over 
deaths,  depends  upon  many  forces.  Among 
these  forces  climatic  conditions  are  perhaps  the 
most  important. 

Climate  and  Population:  in  Warmer  Climates 
Greater  Growth;  in  Colder  Climates  Smaller 
Growth.  —  That  the  climate  has  something  to 
do  with  the  size  of  population,  as  well  as  its 
strength  and  efficiency,  we  have  abundance  of 
evidence.  In  the  warmer  climates,  other  condi- 
tions being  anything  like  equal  or  similar,  we 
find  marriage  at  an  earlier  age,  a  higher  marriage 
rate,  and  consequently  a  greater  birth  rate. 
We  find,  on  the  other  hand,  that  the  con- 
ditions of  living  and  sanitation  in  the  warmer 
climates  are  far  less  favorable  to  health  than 
they  are  in  colder  ones,  and  these  inferior 
health  conditions  tend  to  keep  down  the  in- 
crease of  population.  In  colder  climates  we 
have  a  much  lower  marriage  rate,  later  mar- 
riage, and  consequently  a  much  smaller  birth 
rate.  In  these  locations,  however,  we  generally 
find  better  sanitary  conditions,  and  these  condi- 
tions mean  a  smaller  death  rate.  We,  therefore, 
have  a  much  more  rapid  growth  of  population 
in  warmer  climates  than  in  colder  ones,  espe- 
cially so  if  the  conditions  of  health  are  at  all 
favorable. 


66      PRINCIPLES  OF  WEALTH  AND  WELFARE 

Physical  Vigor  and  Population.  —  That  the 
natural  growth  of  population  should  in  a  large 
measure  depend  upon  the  physical  health, 
strength,  and  vigor  of  the  individual,  follows 
from  the  very  nature  of  the  reproduction  of  the 
human  species.  Children  are  not  born  and 
cannot  be  born  of  invalid  parents  ;  there  can  be 
no  reproduction  without  physical  vigor.  The 
physical  qualities  necessary  for  rep  reduction  are, 
however,  largely  influenced  by  the  climatic  and 
economic  conditions  in  which  the  parents  live, 
and  these  conditions,  especially  the  economic 
ones,  are  in  a  large  measure  dependent  upon  the 
wages  received.  All  other  things  being  equal, 
higher  wages  mean  a  greater  birth  rate  and  a 
smaller  death  rate.  Higher  wages  make  pos- 
sible more  physical  vigor  on  the  part  of  the 
parents  and  also  better  nourishment  and  sani- 
tary conditions  for  the  child. 

Economic  and  Social  Conditions  and  Ideals 
influence  Population. — As  we  have  already  seen, 
economic  man  is  not  wholly,  or  even  in  large 
part,  individualistic.  He  is  surrounded  from 
the  moment  of  his  birth  to  that  of  his  death,  by 
economic,  social,  and  spiritual  forces.  He  lives 
in  a  realm  which,  to  a  large  degree,  is  created 
by  nature's  forces,  by  the  larger  body  called 
society,  and  by  the  Great  Being  who  controls 
and  directs  all  forces  and  beings.  Though  he 


LABOR  A  PRODUCING  AGENT  67 

lives  and  moves  in  a  world  of  which  he  is  only 
in  a  slight  part  the  maker,  man  throughout 
most  of  his  life  enjoys  some  individual  freedom 
and  bears  some  individual  responsibility ;  he 
has  some  choice  in  his  own  labors,  thoughts, 
and  feelings.  His  freedom  is,  however,  always 
a  relative,  not  an  absolute  quantity.  The  ex- 
ternal forces  and  influences  which  always  sur- 
round him  do  not  all  the  time  make  equally 
powerful  impressions  upon  him.  The  individ- 
ual's desires  and  acts  are,  therefore,  in  part  his 
own,  and  also  in  part  the  result  of  his  peculiar 
economic,  social,  or  religious  surroundings. 
Man's  environment,  as  well  as  his  individual 
instincts  and  desires,  has  much  influence  upon 
the  strength  and  the  amount  of  population. 
Let  us  consider  the  influence  which  economic 
and  social  conditions  and  ideals  have  upon  the 
growth  of  population  in  the  following  classes, 
(i)  The  Unskilled  Class  and  Population; 
Greatest  Growth.  —  It  is  among  the  lowest 
ranks  of  society  that  we  have,  as  a  rule,  the 
greatest  birth  rate.  The  unskilled  man,  the 
laborer  who  has  only  muscular  and  nervous 
energy  to  use  and  sell,  receives  as  large  wages 
at  twenty  years  of  age  as  he  does  at  forty.  He 
does  not  earn  his  wages  by  skill,  which  it  takes 
many  years  to  acquire.  If  his  wages  are  maxi- 
mum at  twenty,  the  tendency  is  for  him  to 


68       PRINCIPLES  OF  WEALTH  AND  WELFARE 

marry  at  this  age,  if  not  at  an  earlier  one.  La- 
borers of  this  class,  therefore,  marry  while  they 
are  young,  and  many  children  are  born  unto 
them,  if  their  conditions  of  living  are  such  as 
to  cause  them  to  be  vigorous  in  their  physical 
qualities.  When  surrounded  by  climatic,  eco- 
nomic, and  sanitary  conditions,  which  bring 
health  to  themselves  and  their  children,  this 
class  will  double  itself  in  thirty  years  and  in- 
crease a  million  fold  in  six  hundred  years,  if 
pestilence  or  war  does  not  take  them  away. 

As  yet,  however,  the  world  has  never  by  any 
means  witnessed  such  a  marvelous  increase  in 
its  laborers.  We  may  with  sufficient  reason 
expect  to  see  great  improvement  in  the  condi- 
tions of  the  health  and  strength  of  the  masses, 
but  whether  the  future  shall  behold  such  a  great 
multiplication  of  the  race  as  this,  no  thoughtful 
man  will  predict.  Modern  action  and  thought 
all  look  toward  better  and  more  efficient  condi- 
tions of  human  life.  The  task  of  caring  for  the 
sick  and  the  infirm,  as  well  as  that  of  eliminating 
the  conditions  which  breed  these,  is  more  and 
more  being  overcome.  It  is  not  only  necessary 
that  the  conditions  of  health  be  greatly  improved, 
but  it  is  also  necessary  that  wealth  be  wonder- 
fully increased  before  we  can  have  such  a  great 
growth  of  population.  When  population  in- 
creases at  a  greater  rate  than  does  wealth,  wages 


LABOR  A  PRODUCING  AGENT  69 

decrease,  and  with  a  decrease  in  wages  we 
always  have  a  falling  off  in  the  birth  rate  and 
oftentimes  an  increase  in  the  death  rate. 

(2)  The   Rich    and    Population;     Smallest 
Growth.  —  While  among  the  unskilled  workers 
we  may  with  good  reason  expect  a  very  consider- 
able, if  not  a  very  large  increase,  among  the  high- 
est classes  of  our  economic  society  we    shall 
probably  have  but  a  very  slight  growth.      This 
small  increase  among  the  rich,  among  the  indus- 
trial managers  and  captains,  is  most  certainly  not 
because  of  economic  conditions.     It  is  because 
of  economic,  and  especially  social,  ideals.     The 
parents  of  this  class  can  surround  their  children 
with  the  best  possible  conditions  of  health,  but 
still  the  excess  of  births  over  deaths  is  very 
slight.     These  parents,  for  some  reason  or  other, 
do  not  desire  to  have  many  children,  at  least 
to  care  for  many  children.     The  cause,  while 
somewhat  due  to  economic  ideals,  is  very  largely 
social.     The  social  ideal  among  a  great  number 
of  this  class   is  at  present  most  strongly  set 
against   large  families.     A  large  family  inter- 
feres with  the  social  pleasures  and  dissipations, 
and  for  this  reason  largely  we  find  but  few  chil- 
dren in  the  homes  of  the  very  rich. 

(3)  The  Skilled  Class  and  Population;  Mod- 
erate Growth.  —  Between  these  two  great  ex- 
tremes, between  the  unskilled  laborer  with  his 


70      PRINCIPLES  OF  WEALTH  AND  WELFARE 

numerous  children  and  the  highly  skilled  and 
great  producer  with  his  very  small  family,  stands 
a  middle  class.  Upon  this  class  the  social  ideals  in 
reference  to  children  have  very  much  less  influ- 
ence than  is  the  case  with  the  highest  class.  With 
the  parents  of  this  class,  however,  economic  con- 
ditions and  ideals,  especially  the  economic  future 
of  both  parent  and  child,  have  great  and  weighty 
considerations.  Among  these  workers  the  aver- 
age age  of  marriage  is  high,  and  consequently 
the  birth  rate  is  lower.  They  do  not  receive 
their  maximum  wages  until,  perhaps,  at  the  age 
of  thirty-five ;  they  must  acquire  their  skill,  as 
well  as  their  physical  maturity,  before  they  can 
become  the  most  efficient  producers.  These 
economic  conditions  tend  to  postpone  marriage 
for  this  class  of  laborers,  and  with  marriage  later 
in  life  fewer  children  are  born  unto  them.  But, 
as  we  have  said,  social  ideals  have  compara- 
tively slight  influence  upon  their  thought  and 
action  —  to  them  a  baby  is  not  a  great  social 
hindrance,  and,  though  they  marry  later  in  life 
than  do  the  highest  social  classes,  more  children 
are  born  unto  them. 

Great  Growth  of  Population  in  the  United  States. 
—  For  all  of  these  classes  modern  science,  medi- 
cine, philanthropy,  and  governmental  regulation 
have  produced  marvelous  results.  The  death 
rate  of  each  class  has  in  many  places  been  greatly 


LABOR  A  PRODUCING  AGENT  fl 

diminished.  Population  consequently  tends  to 
increase  more  rapidly,  notwithstanding  the  fact 
that  there  is,  because  of  certain  social  and  eco- 
nomic ideals,  a  counter-tendency  working  to  di- 
minish it.  This  counter-tendency  has,  however, 
not  been  very  strong,  especially  in  our  own 
country.  Throughout  our  life  as  a  nation,  we 
have  grown  rapidly  of  ourselves :  by  our  excess 
of  births  over  deaths.  Our  blood  has  been 
strong,  vigorous,  and  highly  reproductive.  We 
have  likewise  borrowed,  so  to  speak,  sons  and 
daughters  from  the  four  quarters  of  the  globe ; 
from  1821  to  fpoj  more  than  twenty-one  million 
foreigners  came  to  our  shores. 

In  1790,  when  we  began  our  national  exist- 
ence, we  had  less  than  four  million  people.  By 
1900  we  had  increased  to  the  enormous  figure 
of  seventy-five  millions.  From  1790  to  1860 
we  doubled  in  population  three  times ;  we  in- 
creased from  3,929,214  to  31,443,321.  The 
world  has,  perhaps,  no  parallel  to  this  increase 
of  population,  at  least  upon  an  equal  scale.  And 
the  vast  crowds  of  foreigners  who  have  come  to 
us  have  almost  exclusively  settled  in  the  sec- 
tions of  the  North  and  West.  For  the  states  of 
these  sections  the  immigrants,  of  almost  the 
lowest  of  the  economic  and  social  ranks  and  of 
almost  all  the  nationalities  and  religious  sects, 
constitute  not  only  one  of  the  greatest  of  all 


72       PRINCIPLES  OF  WEALTH  AND  WELFARE 

economic  problems,  but  also  one  of  the  most 
perplexing  of  all  social  and  political  problems. 
On  the  other  hand,  to  the  states  at  the  South, 
where  there  are  at  present  about  eight  million 
negroes,  the  negro  is  beyond  a  doubt  a  most 
serious  industrial,  political,  and  social  problem. 

Our  gigantic  growth  in  population,  along 
with  the  great  and  extensive  westward  movement 
which  has  accompanied  it,  has  perhaps  been 
the  greatest  factor  in  our  rapid  and  wonderful 
economic  life  and  development.  Along  with 
this  increase  of  labor,  along  with  this  movement 
westward  to  fields  new  and  marvelously  en- 
dowed by  nature,  has  been  another  fundamen- 
tally important  movement — the  growth  of  Amer- 
ican cities.  In  1800  only  four  per  cent  of  our 
population  dwelt  in  towns  of  eight  thousand 
or  more.  By  1900  thirty-three  per  cent  of 
our  people  lived  in  cities,  —  an  extraordinary 
increase  within  a  century.  Many  of  the  foreign- 
ers who  have  come  to  us  have  settled  within 
our  cities  and  have  greatly  swelled  their  popu- 
lation. So  quickly  have  our  cities  grown,  so 
great  have  been  their  economic  problems,  as 
well  as  those  of  their  government,  that  we  have 
not  by  any  means  mastered  them. 

This  marvelous  increase  in  American  labor 
has  not,  however,  been  in  excess  of  the  growth 
in  American  wealth.  While  our  population 


LABOR  A  PRODUCING  AGENT  73 

grew  from  thirty-one  million  in  1860  to  seventy- 
five  million  in  1900,  our  wealth  grew  during 
these  years  at  a  still  greater  ratio.  When  the 
civil  war  began,  the  American  people  possessed 
wealth  valued  at  about  $  1 6,000,000,000.  When 
the  nineteenth  century  came  to  a  close,  this 
wealth  had  grown  to  the  enormous  figure  of 
about  $94,000,000,000. 

Labor,  How  Productive:  (d)  Amount  of  the 
Other  Agents ;  the  Demand  for  Labor.  —  In  all  of 
the  aspects  of  the  productiveness  of  labor,  which 
we  have  just  considered,  we  have  assumed  that 
labor  is  at  work  with  the  other  agents  of  pro- 
duction —  land,  capital,  and  business  manage- 
ment —  in  some  proportion  or  other.  Labor 
in  connection  with  the  other  agents  produces 
wealth,  and  the  part  that  it  produces  in  each 
article,  which  they  together  create,  depends  upon 
the  efficiency  and  quantity  of  these  agents,  as 
well  as  upon  the  efficiency  and  quantity  of 
labor.  We  have  under  this  assumption  dis- 
cussed the  productive  powers  of  labor  from  the 
point  of  view  of  the  individual's  capacity  and 
the  method  of  using  it,  and  also  from  the  point 
of  view  of  the  quantity  of  labor. 

It  is  now  necessary  to  explain  our  assump- 
tion and  to  speak  more  fully  of  the  relation  of 
the  productiveness  of  labor  to  the  quantity  and 
quality  of  the  other  agents  with  which  it  works. 


74      PRINCIPLES  OF  WEALTH  AND  WELFARE 

If  the  amount  of  labor  is  small  as  compared 
with  the  demand  for  it,  that  is  if  the  quantity 
of  labor  is  small  as  compared  with  that  of  capi- 
tal and  the  other  agents,  the  individual  laborer 
produces  more  wealth ;  he  works  with  more 
efficient  instruments  and  employs  his  energy  to 
greater  advantage.  On  the  other  hand,  in- 
crease the  quantity  of  labor,  its  quality  remaining 
the  same  and  the  demand  for  it  remaining  the 
same,  and  the  individual  laborer  produces  less 
wealth ;  he  employs  his  energy  to  less  advan- 
tage. In  the  United  States,  labor,  while  it  has 
within  the  last  century  increased  with  wonder- 
ful rapidity,  has  not  yet  increased  as  rapidly  as 
has  wealth.  Its  supply  is  not  great  as  compared 
with  the  demand  for  it,  and  consequently  the 
individual  laborer  produces  much  wealth  and 
receives  much  wealth  in  wages.  In  China,  on 
the  other  hand,  the  supply  of  labor  is  enormous 
as  compared  with  the  demand  for  it.  There  the 
individual  laborer  produces  little  and  conse- 
quently receives  little  in  wages. 

QUESTIONS 

(1)  Upon  what  does  the  productive  power  of  the  laborer 
depend? 

(2)  What  does  a  great  population  have  to  do  with  the 
production  of  wealth? 

(3)  Does  an  increase  in  the  wealth  of  a  community 
cause  its  native  population  to  increase? 


LABOR  A  PRODUCING  AGENT  75 

(4)  Does  a  warm  climate  make  it  possible  to  produce 
great  wealth? 

(5)  How  may  North  Carolina  and  Nebraska  increase 
the  quantity  and  efficiency  of  their  labor  ? 

(6)  Does  a  large  number  of  efficient  laborers  increase  the 
welfare  of  a  community? 


CHAPTER   III 

LAND    A    PRODUCING    AGENT 

Nature  in  Production;  Land  and  the  Forces  of 
Nature.  —  We  have  already  said  that,  in  the  pro- 
duction of  utilities  which  can  satiate  or  help  to 
satiate  human  wants,  man  and  nature  work 
together.  Man  alone  cannot  produce  such 
utilities;  neither  can  nature  alone.  When 
these  two  forces,  or  sets  of  forces  as  they  really 
are,  work  in  connection  with  each  other,  wealth 
in  many  forms  and  in  great  quantities  may  be 
produced.  The  productiveness  of  a  part  of  the 
first  set  of  these  forces  —  the  productiveness  of 
ordinary  labor  —  has  already  been  considered. 
Later  we  shall  treat  of  the  other  part  of  the 
first  set  of  forces  —  business  management.  Let 
us  now  take  into  our  consideration  the  set  of 
forces  called  nature. 

The  first  and  most  important  element  of 
these  forces  of  nature  has  always  been  thought 
to  be  land  and  its  accompaniments  —  water,  air, 
light,  and  heat.  When  the  men  of  ancient  or 
mediaeval  times  spoke  of  nature  as  a  producing 
agent,  they  had  in  their  mind  the  vision  of  soil 
and  of  the  agricultural  products  which  man 
working  with  it  might  create.  When  to-day  we 

76 


LAND  A  PRODUCING  AGENT  77 

speak  of  nature  as  a  producing  agent,  we  think 
of  something  more  than  soil  and  its  allied 
forces.  We  have  the  vision  of  extended  space 
upon  which  to  build  our  houses,  factories,  and 
railways ;  we  have  the  vision  of  soil  yielding 
forth,  under  the  pressure  of  man,  manifold 
kinds  of  vegetable  products  ;  we  have  the  vision 
of  water,  steam,  and  electricity,  being  made  the 
playthings,  so  to  speak,  as  well  as  the  mighty 
motive  forces  of  man  ;  we  have  also  the  vision 
of  great  stores  of  minerals  which  nature  through- 
out her  long  existence  has  gradually  accumu- 
lated. In  our  present  discussion,  we  shall, 
however,  treat  exclusively  of  land  and  its  accom- 
panying forces  —  of  land  as  a  producing  agent. 
The  great  motive  powers  and  mineral  resources, 
as  we  understand  them  as  producing  agents, 
more  truly  belong  to  capital  than  to  land.  The 
business  man  thinks  of  his  water,  steam,  or 
electric  plant,  and  his  mines,  as  a  part  of  his 
capital,  rather  than  as  a  part  of  his  land,  though 
each  plant  makes  use  of  a  certain  quantity  of 
land.  In  fact,  the  distinction  between  land  and 
certain  forms  of  capital  as  producing  agents  is 
very  slight.  They  could,  therefore,  be  very 
properly  treated  the  one  under  the  head  of  the 
other.  But  in  our  treatment  we  shall,  chiefly 
for  the  sake  of  clearness  of  thought,  keep  them 
separate  and  distinct. 


78       PRINCIPLES  OF  WEALTH  AND  WELFARE 

Land  has  always  been  thought  by  man  to  be 
a  producing  agent  and  consequently  a  part  of 
his  wealth,  whether  he  owns  it  himself  or  in 
common  with  his  fellow-men.  He  has  used  its 
smaller  vegetable  growth  for  the  pasturage  of 
his  flocks  and  herds,  and  the  larger  growth  for 
his  own  fuel.  He  has  made  use  of  its  fertility 
for  agricultural  purposes,  its  space  extension  for 
buildings,  and  some  of  its  minerals  as  instru- 
ments in  his  own  hands  for  greater  production ; 
and  in  all  of  these  uses  land  has  productive 
power.  The  productive  power  of  this  agent, 
as  that  of  labor,  depends  upon  its  various  prop- 
erties and  the  method  of  their  use. 

Land,  How  Productive  :  (a)  Fertility  and  Me- 
chanical Properties  of  Tillage.  —  Upon  the  whole, 
land  is  used  more  for  agricultural  purposes  than 
for  any  other,  and  for  such  uses  the  most  im- 
portant property  is  its  fertility  —  the  chemical 
compounds  and  agents  which  it  possesses.  But, 
in  connection  with  its  chemical  properties,  there 
must  also  be  certain  mechanical  properties.  It 
is  not  only  necessary  to  have  fertility,  but  it  is 
also  necessary  to  have  a  soil  that  can  be  tilled, 
a  soil  through  which  the  roots  of  vegetation 
may  enter  and  water  permeate.  Trees  and 
vegetables  do  not  grow  and  cannot  be  made 
to  grow  upon  solid  rock.  On  the  other  hand, 
land  without  fertility  will  not  produce  utilities, 


LAND  A  PRODUCING  AGENT  79 

though  it  possesses  all  of  the  mechanical  prop- 
erties needed  for  the  roots  of  vegetation ;  these 
roots  must  be  fed  by  the  soil,  as  well  as  sur- 
rounded by  it. 

Land,  with  all  of  its  wonderful  chemical  and 
mechanical  properties,  when  left  to  itself,  is 
really  not  a  producer  of  wealth.  It  produces 
no  material  form  which,  unchanged  by  man, 
may  be  thought  of  as  wealth  in  the  sense  in 
which  we  use  the  term.  And  its  products, 
which  maybe  transformed  by  man  into  utilities 
for  the  satiation  of  his  wants,  are  created  very 
slowly  by  nature  alone.  When,  however,  man, 
by  means  of  his  own  strength  alone,  or  by 
means  of  this  strength,  and  also  certain  instru- 
ments of  power  which  he  and  nature  have 
produced,  works  with  land  and  her  forces,  its 
useful  products  grow  and  multiply  with  won- 
derful rapidity.  Man  may  merely  till  the  soil 
by  means  of  his  plow  and  hoe,  and  thereby 
make  its  mechanical  properties  loose  so  that 
roots  and  rains  may  easily  enter  them.  He 
may  also,  by  adding  reagents  —  fertilizers,  ma- 
nures, and  ashes  —  completely  change  the  chemi- 
cal compounds.  These  chemical  and  mechanical 
properties  of  land,  from  which  man  may  bring 
forth  fruits,  vegetables,  and  plants,  are  in  part  the 
gift  of  nature,  and  in  part  the  result  of  man's 
labors  and  expenditures  upon  them.  At  times 


80      PRINCIPLES  OF  WEALTH  AND  WELFARE 

we  find  lands  which  nature  has  made  not  only 
fertile,  but  also  loose  and  mellow.  At  other 
times  the  fertility  and  looseness  of  the  soil 
are  largely  the  result  of  the  expenditures  of 
wealth  and  labor  on  the  part  of  man. 

Land,  How  Productive  :  (b)  Light,  Heat,  and 
Water.  —  Fertility  and  the  mechanical  prop- 
erties of  soil,  though  fundamentally  necessary 
for  agricultural  uses,  are  not  the  only  elements 
of  soil  which  possess  productive  power.  There 
must  also  be  sufficient  light,  heat,  and  water 
before  vegetation  can  grow  and  bring  forth  its 
ripened  fruits.  Let  us  take  into  our  considera- 
tion some  illustrations.  The  farmer  of  northern 
Maine  may  possess  the  most  fertile  and  easily 
tilled  lands.  If  his  summers  are  short,  his 
summer  sky  largely  overcast  with  clouds,  and 
the  temperature  low,  he  produces  but  little, 
though  his  acres  be  many,  soft,  and  rich, 
and  though  he  till  them  with  the  maximum 
amount  of  skill  and  scientific  knowledge.  On 
the  other  hand,  the  fertile  and  mellow  lands 
of  the  far  South  or  of  the  West,  which  lie  under 
clear  and  scorching  suns,  will  yield  but  little  un- 
less there  is  a  large  amount  of  rainfall  or  a  great 
supply  of  water  by  means  of  irrigation  canals. 

Land,  How  Productive  :  (c)  Extension  or  Amount 
of.  —  Lands  used  for  mining  purposes,  lands 
from  which  are  extracted  the  minerals  that 


LAND  A  PRODUCING  AGENT  8l 

nature  through  long  periods  has  deposited  in 
certain  places,  need  not  possess  any  of  these 
properties  which  we  have  just  considered.  It 
makes  little  difference  whether  land  for  these 
uses  be  fertile  or  poor,  loose  or  stiff,  hot  or 
cold,  moist  or  dry.  Likewise  in  land  for  build- 
ing or  transportation  purposes  little  use  is 
made  of  these  properties  which  are  so  funda- 
mentally and  vitally  necessary  in  agriculture. 
There  is,  however,  one  property  which  is  abso- 
lutely necessary  for  all  uses  of  land,  and  that  is 
its  space  extension.  This  property  is  not  only 
fundamentally  necessary  for  all  uses  of  land,  but 
it  is  also  fundamentally  necessary  for  all  as- 
pects of  man's  life,  whether  he  works  with 
land,  capital,  or  the  mighty  motive  powers  of 
nature,  and  whether  he  creates  the  simplest 
or  the  greatest  and  highest  forms  of  wealth. 
This  property  is  necessary  for  him  as  a  pro- 
ducer and  as  a  consumer.  Space  extension  or 
the  amount  of  land,  just  as  the  amount  of  labor, 
has  much  to  do  with  its  total  productiveness. 
The  greater  the  quantity  of  land,  other  things 
being  at  all  equal,  the  greater  the  productive 
power  of  a  nation  or  of  a  community. 

That  the  quantity  of  land  has  been  recog- 
nized by  the  American  people  as  a  great  factor 
of  production  requires  no  detailed  argument. 
The  history  of  our  wonderful  economic  life,  as 


82       PRINCIPLES  OF  WEALTH  AND  WELFARE 

well  as  of  our  governmental  conduct,  is  full  of 
proof  to  this  effect.  We  at  first  possessed  only 
the  narrow  strip  along  the  Atlantic  seaboard. 
We  later  moved  across  the  mountains  into  the 
fertile  and  extensive  acres  lying  to  the  east  of 
the  Mississippi  River.  We  then  by  leaps  and 
bounds  went  to  the  Pacific  Ocean  —  a  territo- 
rial expansion  the  like  of  which  the  world  had 
never  before  seen,  at  least  within  such  a  short 
space  of  time. 

Land,  How  Productive :  (d)  Situation.  —  The 
chemical  and  mechanical  properties  and  the 
climatic  surroundings,  as  well  as  the  extent  of 
land,  are  not  its  only  elements  of  productive- 
ness. The  location  of  land  is  also  a  great  factor 
in  its  ability  to  produce  wealth.  The  farmer 
and  miner,  the  manufacturer  and  transportation 
agent,  the  merchant  and  the  owner  of  houses 
for  rent,  —  men  in  all  aspects  of  the  business 
realm  recognize  this  element  as  an  exceedingly 
important  one.  The  distance  of  certain  lands 
from  large  towns  or  cities,  and  from  transporta- 
tion facilities  by  water  or  land,  is  a  gigantic 
element  in  their  productive  power. 

The  situation  element  of  land,  which  has  be- 
come of  such  great  importance,  is  in  part  the 
result  of  nature,  but  in  larger  part  the  product  of 
man.  As  individuals  have  more  and  more  con- 
gregated upon  certain  favorable  spots,  as  towns 


LAND  A  PRODUCING  AGENT  83 

and  cities  have  grown  to  enormous  proportions, 
and  as  means  of  transportation  between  these 
cities  have  been  perfected,  a  new  and  marvel- 
ously  great  element  has  been  given  to  the  land 
situated  within  or  near  these  mighty  centers  of 
population.  Select  one  acre  of  land  in  middle 
North  Carolina,  which  possesses  an  average  of 
fertility  and  properties  of  tillage,  which  has  an 
abundance  of  light,  heat,  and  moisture,  and  you 
can  purchase  it  for  $20.  Select  in  certain  por- 
tions of  New  York  City  one  acre  of  land  which 
is  possessed  of  exactly  the  same  properties,  so 
far  as  nature  can  create  these  properties,  and 
you  will  have  to  pay  $1,000,000.  Why  the 
enormous  difference  in  the  price  ?  We  believe 
that  this  vast  difference  in  price  is  a  fair  rep- 
resentation of  the  difference  in  productive  power. 
But  what  has  created  this  great  difference  in 
productiveness  ?  Nature  certainly  has  not  to 
any  very  great  degree.  It  is  man.  Economic 
society  has  established  upon  the  land  of  New 
York  City  its  great  American  center,  in  fact  one 
of  the  greatest  centers  of  the  whole  world.  The 
productive  power  of  land,  not  only  in  New  York 
City  but  also  for  many  miles  outside  of  it,  has 
been  greatly  increased  by  the  very  fact  that  New 
York  has  become  such  a  great  economic  center. 
Land,  How  Productive:  (e)  Amount  of  the 
Other  Agents  of  Production;  the  Demand  for 


84      PRINCIPLES  OF  WEALTH  AND  WELFARE 

Land.  —  All  of  the  properties  of  land,  of  which 
we  have  spoken,  are  more  or  less  relative  prop- 
erties. They  depend  for  their  productivity  to 
a  large  extent  upon  the  amount  of  labor,  capital, 
and  business  management  employed  with  them 
—  that  is  upon  their  uses  and  the  method  of  their 
uses.  As  we  have  already  seen,  their  agricultural 
products  depend  largely  upon  the  amount  of 
fertilization  and  tillage.  These  products  also 
depend  to  a  great  extent  upon  the  kind  of  crops, 
as  well  as  their  rotation,  which  man  attempts 
to  plant  upon  the  land.  Many  an  acre  of  soil 
produces  little  because  it  is  poor  in  its  fertility 
and  because  its  tillage  is  insufficient.  Many  an 
acre,  though  by  nature  supplied  with  many  and 
rich  properties,  produces  little  because  the  method 
of  cultivation  is  thoroughly  unscientific  and  be- 
cause the  same  crop  is  year  after  year  planted 
upon  it. 

Agriculture  has  been  profoundly  changed,  in 
fact  revolutionized,  within  the  last  century. 
Some  of  these  changes  have  come  as  a  result 
of  man's  taking  up  new  land,  as  a  result  of  a 
vast  and  unparalleled  territorial  expansion.  The 
American  farmer  has  moved  westward.  As  his 
old  lands,  from  the  point  of  view  of  tillage,  have 
become  less  and  less  productive,  he  has  cleared 
new  fields,  and  has  gone  to  other  fields  whose 
natural  resources  have  not  as  yet  been  worked 


LAND  A  PRODUCING  AGENT  85 

by  man.  Most  of  the  recent  agricultural 
changes  have,  however,  come  from  other  sources 
than  that  of  territorial  expansion.  They  have 
come  as  a  resultant  of  new  and  scientific 
methods  of  tillage  and  fertilization.  The  farmer 
has  now  in  many  locations  ceased  to  strive  for 
extensive  acres,  for  extensive  farming.  He  now 
spends  his  labor,  capital,  and  business  manage- 
ment upon  fewer  acres;  he  now  farms  more 
and  more  intensively.  He  changes  the  chemi- 
cal compounds  of  his  soil  to  meet  the  needs  of 
the  crop  he  desires  to  plant,  and  he  also  plows 
his  soil  thoroughly  and  deep.  He  has  learned 
the  vitally  important  lesson  that  from  one  acre, 
from  which  he  formerly  received  but  four  bushels 
of  wheat,  he  can  by  means  of  a  slight  increase 
in  the  labor,  capital,  and  business  management 
expended  upon  it  receive  thirty  or  forty  bushels. 
He  is  likewise  beginning  to  learn  a  no  less  im- 
portant lesson:  that  planting  his  soil  from  year 
to  year  with  the  same  seed  soon  exhausts  the 
chemical  properties  which  are  needed  for  the 
nourishment  of  this  seed.  He  is  learning  that 
no  soil  possesses  one  kind  of  properties  in  in- 
exhaustible quantities,  and  that  all  soils  possess 
many  different  properties  in  smaller  or  greater 
quantities.  Many  farmers  now  realize,  and  very 
fortunate  would  it  be  if  all  of  them  could  learn 
the  lesson,  that  to  grow  cotton,  for  instance,  for 


86       PRINCIPLES  OF  WEALTH  AND  WELFARE 

years  upon  the  same  soil  is  the  most  extrava- 
gant and  wasteful  consumption  of  its  natural 
utilities.  It  is,  therefore,  manifest  that  the 
productiveness  of  land  for  agricultural  uses  is 
largely  dependent  upon  the  labor,  capital,  and 
business  management  applied  to  it. 

This  is  equally  a  characteristic  of  land  used 
for  mining,  building,  or  transportation  pur- 
poses. The  richest  vein  of  gold  in  the  world 
will  yield  comparatively  slight  results  unless 
there  is  employed  upon  its  production,  its  ex- 
traction, a  sufficient  quantity  of  capital  and 
labor.  Nature,  as  a  rule,  does  not  yield  her 
products  without  being  hard  pressed  by  man. 
Her  great  and  extensive  treasures  are  hidden 
far  beneath  the  surface,  and  man  must  put 
forth  all  of  his  effort  and  ingenuity  before  he  can 
convert  many  of  them  into  wealth,  into  utilities 
for  the  satiation  of  his  own  wants. 

Land,  How  Productive :  ( f )  Increasing  and  De- 
creasing Returns.  —  Land  as  a  producing  agent, 
whether  for  agricultural,  mining,  or  building 
purposes,  produces  wealth  or  utilities  according 
to  certain  tendencies  which  we  may  call  eco- 
nomic laws.1  We  have  already  seen  that  the 

1  Economic  laws  are  not  so  unchanging  as  are  the  laws  of 
nature,  as  for  instance  those  of  chemistry,  physics,  or  mathe- 
matics. Their  data  are  always  more  or  less  changing  ;  they  have 
a  large  human  element  in  them.  They  are  only  statements  of  the 
tendencies  of  forces  which  are  themselves  to  an  extent  changing. 


LAND  A  PRODUCING  AGENT  87 

productiveness  of  land  depends  upon  its  natural 
properties,  upon  the  uses  which  are  made  of 
them,  and  upon  the  quantity  of  labor,  capital, 
and  management  employed  in  working  these 
properties.  We  have  also  seen  that  soil  in 
bearing  from  year  to  year  the  same  kind  of 
crop,  wheat  or  cotton  for  instance,  will  bring 
forth  less  product  as  the  years  go  by.  As  the 
properties  which  nourish  these  plants  are  grad- 
ually used  up  or  consumed,  the  results  of  apply- 
ing a  certain  amount  of  labor,  capital,  and 
business  management  upon  the  soil  will  de- 
crease from  season  to  season.  If,  then,  corn, 
instead  of  wheat  or  cotton,  is  from  season  to 
season  grown  upon  this  soil,  we  will  have  the 
same  tendency  —  decreasing  returns.  Wheat 
exhausts  the  wheat-nourishing  properties,  and 
cotton  the  cotton-feeding  properties.  For  a 
time  the  properties  which  are  required  for  the 
growth  of  corn  are  perhaps  present  in  large 
quantities.  The  returns  yielded  to  the  labor, 
capital,  and  business  management  employed 
upon  the  soil  will,  therefore,  for  a  time  be  large, 
perhaps  increasing,  but  sooner  or  later  these 
corn-feeding  properties,  like  those  of  wheat  or 
cotton,  will  begin  to  be  exhausted  and  the  re- 
turns to  man's  labor  and  capital  will  decrease. 

In  these  two  cases  we  have  assumed  that  the 
tendency  to  decreasing  returns  in  farming  is 


88       PRINCIPLES  OF  WEALTH  AND  WELFARE 

due  to  the  fact  that  the  properties  which  nature 
supplies  are  gradually  exhausted  and  that  the 
farmer  does  not  attempt  to  replace  them.  Let 
him  attempt  to  replace  them,  let  him  add  more 
and  more  of  labor,  capital,  and  business  man- 
agement to  the  acre  as  the  seasons  go  by,  and 
what  of  his  returns  ?  He  may  for  a  time  re- 
ceive more  and  more  bushels  or  pounds  per 
acre  and  per  unit  of  the  amount  of  the  other 
agents  of  production  employed,  but  the  time 
will  come  when  the  increase  in  his  harvest 
will  not  be  in  proportion  to  the  increase  in  the 
agents  he  uses ;  he  will  come  to  a  point  of  di- 
minishing returns  to  his  labor  and  capital.  It 
will  now  pay  him  to  employ  a  part  of  these 
agents  upon  other  acres  instead  of  those  which 
he  has  been  tilling. 

This  tendency  to  decreasing  returns,  of 
which  we  have  had  two  illustrations,  is  univer- 
sal. It  not  only  applies  to  all  uses  of  land,  but 
it  also  applies  to  all  the  other  agents  of  produc- 
tion,—  to  labor,  capital,  and  business  manage- 
ment, —  though  its  application  to  land  is  possi- 
bly more  universal  than  it  is  to  any  of  the 
other  agents.  While  this  tendency  has  been 
declared  to  be  universal,  to  be  in  all  groups  of 
production,  it  does  not  by  any  means  prevail  at 
all  times  in  any  one  group.  We  have  already 
said,  that,  by  changing  the  crop  or  the  method 


LAND  A  PRODUCING  AGENT  89 

of  tillage  and  fertilization,  we  may  have  for  a 
time  increasing  returns,  not  only  to  the  soil  but 
also  to  the  other  agents  employed  upon  it.  In 
fact,  all  agents  may  at  times  have  increasing 
returns  or  products,  at  other  times  constant  re- 
turns, and  at  other  times  decreasing  returns. 
The  productive  power  of  any  of  the  agents  is 
not  an  absolutely  definite  and  permanent  quan- 
tity and  quality,  and  these  agents  are,  there- 
fore, not  equally  productive  at  all  times. 

Land  and  the  Other  Natural  Forces.  —  We 
have  spoken  of  certain  natural  forces  which  are 
at  work  in  connection  with  land,  —  light,  heat, 
and  water.  We  have  seen  that  a  certain  amount 
of  these  forces  is  necessary  in  all  phases  of  pro- 
duction. These  forces  as  mighty  motive  powers 
have,  however,  not  always  been  employed  in 
production.  Though  they  have  always  existed 
in  nature,  it  has  been  within  very  modern  times 
that  they  have  been  localized  and  applied  by 
man  as  the  great  propelling  forces  in  produc- 
tion. Nature  has  always  supplied  these  forces 
in  abundance,  but  only  recently  has  man  made 
extensive  use  of  them  in  his  attempts  to  produce 
forms  of  wealth.  For  centuries  and  centuries 
he  employed  his  own  muscular  energy  or  that 
of  domestic  animals  as  his  motive  power.  It 
was  not  until  the  latter  part  of  the  eighteenth 
century  that  man  began  to  make  use  of  water 


90      PRINCIPLES  OF  WEALTH  AND  WELFARE 

as  such  a  power  and  to  apply  its  gigantic  force 
to  machinery.  Machinery  driven  by  water  now 
works  upon  nature  and  her  forces,  and  the  prod- 
ucts are  wonderfully  multiplied.  A  great  and 
vital  change  has  come  into  our  economic  life  — 
a  fundamental  revolution  in  our  industries. 
During  the  next  century,  the  famous  nineteenth, 
water  is  transformed  into  steam  and  steam  be- 
comes the  magic  power  in  all  phases  of  produc- 
tion. With  this  new  force  comes  a  greater  and 
far  more  wonderful  life.  This  marvelous  cen- 
tury has,  however,  not  come  to  a  close  before 
another  force  of  nature  is  handled  and  used  by 
man  to  perform  his  tasks  and  to  carry  his 
thoughts  to  all  parts  of  the  world  —  electricity. 
This  wonderful  power  is  to  revolutionize, 
time  and  again,  our  whole  economic  realm. 
The  wasteful  consumption  of  the  water  which 
propels  our  shafting  and  wheels,  the  wasteful 
and  extravagant  consumption  of  wood  and  coal, 
the  powers  of  which  are  converted  into  heat  and 
the  heat  into  steam  for  the  propelling  of  our 
machinery,  —  all  of  this  enormous  waste  in  the 
consumption  of  nature's  energies  is  gradually 
being  diminished.  Man  is  becoming  more  and 
more  economical  in  his  use  of  these  mighty 
forces.  The  energies  of  water,  wood,  and  coal 
are  now  being  converted  directly  into  motive 
power  —  into  electricity. 


LAND  A  PRODUCING  AGENT  91 

QUESTIONS 

(1)  How  much  does  nature  aid  man  in  producing  wheat, 
cotton,  or  houses? 

(2)  Upon  what  does  the  productive  power  of  an  acre  of 
land  depend  ? 

(3)  Will  a  man  employ  his  lands  in  growing  cotton,  corn, 
or  fruits? 

(4)  Will  a  man  employ  his  lands  for  dwelling   houses, 
business  houses,  or  factories? 

(5)  Is   land   an   important   element   in  your    life   and 
welfare? 


CHAPTER    IV 

CAPITAL    A    PRODUCING   AGENT 

The  Relation  of  Capital  to  Production.  —  We 
have  already  said  that,  in  the  production  of 
utilities  or  forms  of  wealth,  man  works  upon 
nature,  not  only  by  means  of  his  own  energy 
but  also  by  means  of  certain  instruments  which 
make  use  of  the  mighty  motive  forces  of  nature. 
In  order  to  produce  utilities,  on  a  large  scale 
at  least,  man  must  work  not  only  with  land  and 
natural  forces  but  also  with  those  instruments 
of  production  which  we  call  capital. 

The  Nature  of  Capital.  —  These  instruments, 
as  well  as  all  the  other  forms  of  wealth,  are  the 
products  of  nature  and  man  working  together. 
They  are  in  part  produced  by  nature,  and  they 
always  employ  the  powers  of  nature.  They 
are  also  produced  by  man,  but  still  they  are  not 
a  part  of  his  own  being  or  qualities,  they  are 
not  a  part  of  his  natural  talent  or  acquired  skill. 
Capital,  while  not  a  part  of  the  individual's 
being,  is  a  very  important  portion  of  his  wealth. 
It  is  also  one  of  the  great  instruments  which 
he  employs  in  creating  more  wealth.  Capital, 
as  well  as  land,  is  external  to  man,  and  both  of 
these  agents  should  be  instruments  for  the 

92 


CAPITAL  A  PRODUCING  AGENT  93 

promotion  of  welfare  to  himself  and  to  his  fellow- 
beings.  They  should  never  become  the  mas- 
ters of  the  individual  or  of  society. 

Capital  and  labor  may  both  be  looked  upon 
in  an  abstract  way,  as  being  abstract  forces,  but 
as  producing  agents  they  assume  certain  con- 
crete and  definite  forms.  We  may  in  an  abstract 
sense  use  the  term  "labor,"  but  in  the  actual 
production  of  wealth  it  is  a  laborer,  not  labor  in 
the  abstract,  who  helps  to  create  utilities.  Like- 
wise we  may  use  the  term  "  capital "  in  an  ab- 
stract sense,  but  it  is  a  certain  and  definite  form  of 
capital,  a  concrete  body  into  which  capital  has 
embodied  itself,  which  helps  to  produce  wealth. 
Capital,  in  the  shape  of  buildings,  tools,  ma- 
chines, rolling  stock,  raw  material,  finished 
goods,  money,  etc.,  —  capital  in  these  and  many 
other  forms  is  the  agent  of  production.  These 
forms  of  capital  are  constantly  changing,  though 
the  abstract  force  is  more  or  less  permanent. 
And  this  characteristic  is  equally  true  of  labor, 
as  a  producing  agent.  The  forms  of  labor,  the 
individual  laborers,  are  continually  changing,  but 
labor,  in  some  form,  is  more  or  less  a  permanent 
force.  In  fact,  all  agents  of  production  are 
abstract  and  more  or  less  permanent  forces,  but 
in  creating  utilities  they  work  in  tangible  and 
concrete  forms. 

Capital,  How  Productive:  (a)  Amount  of. — Of 


94       PRINCIPLES  OF  WEALTH  AND  WELFARE 

capital  in  the  abstract  one  unit  is  as  productive 
as  another  unit.  In  the  concrete,  in  the  certain 
forms  into  which  capital  is  embodied,  one  unit 
may  be  more  or  less  productive  than  another 
unit,  but  only  for  a  time.  The  ideal  in  the 
long  run  is  equal  productivity  to  all  the  units. 
In  this  particular  capital  is  different,  though 
only  slightly,  from  labor  and  land  as  producing 
agents.  The  productive  power  of  labor,  as  we 
have  seen,  depends  upon  the  individual's  capac- 
ity, the  method  of  its  use,  the  number  of  indi- 
viduals, and  also  upon  the  quantity  of  the  other 
agents  employed  in  connection  with  labor.  Like- 
wise the  productivity  of  land  depends  upon  its 
fertility,  the  method  and  purpose  of  its  use, 
its  situation,  its  quantity,  and  the  amount  of  the 
other  agents  used  with  land.  The  productive 
power  of  capital,  on  the  other  hand,  depends 
much  more  largely  upon  its  quantity,  though 
the  purpose  and  method  of  its  use,  as  well  as 
the  amounts  of  the  other  agents,  have  much  to 
do  with  its  productivity.  The  growth  of  capi- 
tal is,  therefore,  a  vitally  important  thing.  The 
greater  the  amount  of  capital,  other  things  be- 
ing equal,  the  greater  its  total  productiveness. 
Growth  of  Capital.  —  During  the  many  centu- 
ries prior  to  the  nineteenth  the  increase  of  capi- 
tal was  comparatively  slow.  There  was  during 
all  these  centuries  much  wealth  produced,  but 
there  was  likewise  much  of  it  consumed,  either 


CAPITAL  A  PRODUCING  AGENT  95 

by  the  individual  or  by  the  state.  As  compared 
with  the  production  of  wealth  within  recent 
years,  little  was,  however,  done  by  the  ancient, 
mediaeval,  and  early  modern  peoples.  Like- 
wise among  these  peoples  the  principle  of  sav- 
ing for  the  future  was  by  no  means  strong.  To 
them  the  economic  future  was  not  at  all  a  cer- 
tain thing.  They  knew  not  at  what  moment 
their  savings  might  be  snatched  from  them, 
either  by  individuals  or  by  the  government, 
of  which  the  people  then  had  little  part. 
Their  failure  to  save  for  the  future  was  due  not 
only  to  the  lack  of  security,  but  also  to  a  lack 
of  economic  knowledge  and  foresight.  Man 
did  not  then  begin  to  realize  the  great  and 
marvelous  productive  power  of  capital  as  an 
agent  in  creating  wealth.  Wealth,  as  he  under- 
stood it,  was  to  be  consumed  in  the  present, 
to  satiate  the  present  wants,  rather  than  to 
be  accumulated  and  saved  for  the  future,  to 
satiate  future  wants  or  to  aid  in  producing 
more  wealth.  Increase  in  wealth  and  capital * 

1  Wealth  includes  capital  and  much 
more  than  capital.  Capital  is  only  the 
part  of  a  man's  wealth  which  is  set 
aside,  not  for  present  consumption  but 
for  use  as  an  agent  in  producing  more 
wealth,  for  making  an  income.  Let 
us  illustrate  this  point  by  means  of  a 
diagram.  The  larger  circle  represents 
wealth,  while  the  smaller  one  repre- 
sents capital. 


96      PRINCIPLES  OF  WEALTH  AND  WELFARE 

is,  therefore,  due  to  at  least  two  sets  of  forces  — 
to  social  and  governmental  security,  and  to  in- 
telligence and  foresight  on  the  part  of  the 
individual. 

Let  us  trace  the  development  and  growth  of 
these  ideas  and  forces. 

(1)  In  the  lower  stages  of  economic  civilization^ 
usually  called  the  fishing  and  hunting  or  Indian 
stage,  the  idea  of  capital  can  scarcely  be  said 
to  exist.     There  exists,  however,  among  these 
primitive  peoples  certain  forms  of  wealth  and 
capital.     Their  instruments  of  fishing  and  hunt- 
ing are  for  them  agents  of  production,  though 
they  perhaps  hardly  begin  to  appreciate  the  fact. 
Among   such  a   people  the  growth  of  wealth 
and   capital   is,  therefore,  exceedingly   slow,  if 
indeed  there  is  any  increase  at  all.    They  care 
little  for  their  economic  future,  and  capital  plays 
a  very  small  and  insignificant  part  in  their  life. 

(2)  In  a  higher  stage  of  civilization,  when 
flocks,  herds,  lands,  and  mechanical  appliances 
belong  to  man,  when  his  tent   has  become  a 
permanent  structure  of  wood  or  stone,  a  home 
for  himself  and  his  family,  the  ideas  of  wealth 
and  capital  are   far  greater  and   more   impor- 
tant.    Capital    is  now  beginning  to  be  recog- 
nized as  a  productive  power  for  the  present  and 
the  future,  and  the  future,  because  of  more  and 
more  efficient  government,  is  becoming  much 


CAPITAL  A  PRODUCING  AGENT 


97 


more  certain  and  secure.  Still  labor  and  land  l 
are  the  chief  agents  in  the  production  of  wealth. 
Among  such  a  people  the  desire  to  save  some- 
thing, to  lay  aside  something  of  each  day's 
products  for  future  use,  and  to  add  to  capital 
because  it  has  productive  power  for  them, 
is  becoming  stronger  and  stronger.  In  this 
stage  man  becomes  a  far  greater  economic 
factor ;  his  intelligence  and  welfare,  as  well  as 
his  capital,  have  greatly  increased.  He  also 
becomes  a  better  citizen  in  the  society  in  which 
he  lives  and  puts  forth  his  activity  and  effort. 
The  productive  power  and  citizenship  of  the 
southern  negroes,  for  instance,  —  and  unfortu- 
nately for  themselves  and  their  communities 
many  of  them  still  live  in  the  most  primi- 
tive of  all  the  stages  of  economic  life,  —  will 
be  greatly  enhanced  when  they  become  the 
possessors  of  more  wealth  and  capital. 

(3)  There  is  still  a 
higher  stage  of  eco- 
nomic civilization, 
popularly  called  in- 
dustrialism. In  this 

1Land,  as  we  have  said, 
may  be  regarded  as  a  part  of 
capital,  but  largely  for  the 
sake  of  clearness  of  thought 
we  treat  it  under  a  separate 
head. 


98      PRINCIPLES  OF  WEALTH  AND  WELFARE 

stage  capital  plays  a  more  and  more  impor- 
tant and  vital  part;  it  becomes  a  great  and 
powerful  producing  agent.  Order  and  peace 
now  prevail,  and  the  economic  future  is  more 
secure,  since  the  government  has  become  a  per- 
manent and  efficient  institution.  Pasturage 
and  farming  are  no  longer  the  all-absorbing 
groups  of  economic  activity.  Mining,  manu- 
facture, transportation,  and  commerce  are  also 
developing.  The  miner  and  the  manufacturer, 
the  transportation  agent  and  the  merchant,  all 
have  need  of  much  more  capital  than  does  the 
hunter,  the  keeper  of  flocks,  or  the  tiller  of  the 
soil.  Their  need  of  capital  is  exceedingly  great. 
They  must  have  all  of  the  mechanical  appli- 
ances, tools,  and  machines,  with  which  to  make 
use  of  the  mighty  forces  of  nature  as  motive 
power;  they  must  have  great  buildings,  plants, 
and  rolling  stock  ;  they  must  have  large  quanti- 
ties of  raw  material  and  finished  goods.  In 
this  stage  we  have,  therefore,  the  greatest  growth 
of  capital  and  wealth.  Man  now  produces 
more  wealth,  and  though  he  consumes  greater 
quantities  of  it,  he  saves  much  to  be  used  as  an 
agent  in  producing  more  wealth  —  to  be  em- 
ployed as  capital.  He  accumulates  wealth  and 
uses  a  part  of  it  as  capital,  and  this  capital  makes 
it  possible  for  him  to  produce  more  wealth. 
Capital,  How  Productive :  (b)  Form  of.  —  In  the 


CAPITAL  A  PRODUCING  AGENT  99 

foregoing  discussion  we  have  for  the  most  part 
assumed  that  capital  in  all  of  its  forms  is  equally 
productive.  As  we  have  already  said,  this  as- 
sumption is  not  by  any  means  wholly  true  of 
capital  in  the  actual  business  world,  though  it 
is  in  the  long  run  the  ideal  or  standard.  Capi- 
tal embodied  in  cotton  lands  and  their  tillage 
produces  more  wealth  at  one  season  than  at 
another.  Capital  employed  in  houses  con- 
structed for  the  purpose  of  rent  produces  more 
wealth  in  one  place  than  in  another,  and  in  the 
same  location  more  at  one  time  and  less  at 
another.  Capital  invested  in  the  Southern  Rail- 
way Company  produces  at  times  more  than 
that  used  in  the  Great  Northern  Railway  Cor- 
poration, while  at  other  times  it  produces  less. 
Capital,  as  a  producing  agent,  is,  therefore,  in 
many  respects  like  labor  and  land ;  its  produc- 
tive power  depends  to  an  extent  upon  the  pur- 
poses of  its  use,  as  well  as  upon  the  amount 
of  it  and  the  method  of  its  employment. 

Capital  in  the  abstract  is  always  mobile;  it 
can  go  without  hindrance  or  loss  from  one 
group  or  subgroup  of  industries  to  another. 
Capital  in  the  abstract  moves  from  the  place 
where  it  is  least  productive  to  the  place  where 
it  is  most  productive.  In  its  concrete  form  — 
in  lands,  houses,  machinery,  and  goods,  of  vari- 
ous kinds  —  it  is,  however,  by  no  means 


100    PRINCIPLES  OF  WEALTH  AND  WELFARE 

readily  mobile,  at  least  in  many  of  its  forms. 
Very  frequently  is  it  in  such  a  shape  that  it 
cannot  be  changed  from  one  form  to  another 
without  great  loss.  To  convert,  within  a  few 
days,  the  capital  invested  in  a  cotton  mill  or 
that  in  a  railway  plant  into  another  form  is 
practically  impossible.  In  a  very  general  way, 
capital,  land,  and  labor  each  competes  within  its 
own  forms,  and  all  these  agents  compete  with 
each  other.  In  a  very  general  way  they  are,  there- 
fore, all  more  or  less  mobile.  They  have  the 
ability  to  move  from  one  group  of  work  which 
yields  smaller  returns  to  another  group  which 
yields  greater  returns,  but  it  requires  time,  and 
even  loss,  for  this  movement  on  the  part  of 
either  of  these  agents  to  take  place. 

Capital,  How  Productive  :  (c)  Method  of  using 
it;  Amount  of  the  Other  Agents.  —  We  have  seen 
that  the  productive  power  of  capital  depends 
upon  its  quantity  and  the  form  of  its  embodi- 
ment. This  power  also  depends  upon  the 
method  with  which  capital  is  employed  and 
the  quantity  of  the  other  agents  at  work  with 
it.  Its  productiveness  is  largely  dependent  upon 
the  raw  material,  labor,  and  business  manage- 
ment used  with  it.  Capital  can  produce  no 
wealth  whatever  unless  it  can  be  employed 
with  labor,  both  of  the  ordinary  and  the  man- 
aging type.  Man  must  use  and  manage  this 


CAPITAL  A  PRODUCING 'AGENT    ' 


101' 


agent  before  it  can  produce  wealth  in  any  form. 
A  locomotive,  it  makes  no  difference  how 
strong  and  efficient  it  may  be,  cannot  create 
transportation  services  without  man  to  feed  its 
furnace,  oil  its  machinery,  and  guide  its  move- 
ment in  speed  and  direction.  And  this  loco- 
motive can  produce  but  very  little  wealth  when 
only  one  man  is  employed  with  it.  Assign  to 
it  all  the  laborers  needed  for  its  care  and  guid- 
ance, its  coal  and  water,  the  rails  upon  which 
it  moves,  and  the  bed  necessary  for  their  sup- 
port, and  its  products  are  a  thousand  fold 
greater. 

The  method  of  using  capital  in  connection 
with  certain  amounts  of  the  other  agents  — 
labor,  land,  and  business  management  —  has 
assumed  many  different  shapes.  At  one  time 
capital  exists  in  small  quantities,  and  is  used 
by  the  individual  possessor  to  assist  him  in 
gaining  a  greater  control  over  nature  and  her 
forces ;  is  used  to  aid  him  in  producing  utilities 
which  can  satiate  his  wants.  At  another  time 
capital  exists  in  greater  quantities,  and  many 
individuals  join  together  in  the  employment  of 
it  for  agricultural,  mining,  manufacturing,  trans- 
portation, or  mercantile  uses.  We  have  the 
individual  manager  of  capital  as  a  producing 
agent.  We  have  private  partnerships  and  small 
corporations.  We  have  also,  and  at  present, 


io2  'PRINCIPLES  OF  WEALTH  AND  WELFARE 

to  an  enormous  extent,  the  great  joint  stock 
corporations.  Each  of  these  organizations,  as 
well  as  each  individual  manager  of  capital,  is 
employing  its  capital  for  all  uses  and  phases 
of  production,  and  according  to  the  plan  and 
method  which  seem  to  bring  the  greatest 
possible  returns  for  its  productive  powers. 

Capital  and  Capitalistic  Production;  Its  General 
Results. — Throughout  the  history  of  all  the 
stages  of  economic  life  there  has  been  more  or 
less  of  capital  employed  in  the  production  of 
wealth,  though  at  times  the  quantity  has  been 
exceedingly  small  and  its  application  in  the 
crudest  possible  manner.  The  bow  and  the 
arrow  of  the  barbarous  Indian  are  his  capital, 
as  are  also  the  crude  plow  and  the  ox  of  the 
Southern  negro.  But  capital  was  not  for  cen- 
turies and  centuries  a  great  agent  of  the  pro- 
duction of  wealth.  In  fact  it  has  become  a  very 
great  agent  only  within  the  last  few  decades, 
and  for  only  a  few  of  the  more  advanced  sec- 
tions of  the  world.  Throughout  the  vast  ter- 
ritory of  Asia  and  in  many  parts  of  Europe 
and  the  American  continents,  it  is  labor  which 
is  still  the  great  and  vitally  important  agent  of 
production.  In  a  very  few  places  and  in  a  very- 
few  groups  of  industry,  however,  capital  man- 
aged by  large  business  organizations  has  come 
to  the  front  and  is  now  the  dominant  force  in 


CAPITAL  A  PRODUCING  AGENT  103 

the  production  of  all  kinds  of  utilities.  With 
the  coming  of  capitalistic  production,  whether 
capital  plays  a  dominant  or  only  a  very  impor- 
tant part,  has  also  come  a  profound  revolution 
in  the  economic  aspects  of  life,  and  in  the  politi- 
cal and  social  as  well.  Capitalistic  production 
has  radically  changed  the  location  and  methods 
of  industries,  shifted  population  from  one  sec- 
tion to  another,  made  rich  and  powerful  indi- 
viduals and  classes  who  were  formerly  poor  and 
low.  It  has  also  added  enormously  to  our 
wealth,  and  in  a  very  considerable  measure  it 
has  caused  our  welfare  to  be  multiplied. 

QUESTIONS 

(1)  How  much  wealth  can  a  man  without  the  aid  of 
capital  produce? 

(2)  Why  do  you  reserve  a  part  of  your  wealth  for  future 
consumption? 

(3)  Why  does  a  man  set  aside  a  part  of  his  wealth  to  be 
used  as  capital? 

(4)  Will  a  man  make  use  of  his  capital  in  the  cultivation 
of  cotton  or  wheat,  or  in  the  building  of  factories  or  railways  ? 

(5)  Without  capital  is  it  possible  for  man  to  use  machin- 
ery in  the  production  of  wealth  ? 

(6)  Without  capital  is  it  possible  for  man  to  use  water, 
steam,  and  electricity  as  motive  powers  in  the  production  of 
wealth  ? 

(7)  Does  capital  add  to  your  welfare? 


CHAPTER  V 

BUSINESS    MANAGEMENT    A    PRODUCING    AGENT 

Business  Management  in  all  Aspects  of  Produc- 
tion. —  Without  some  form  of  organization, 
production  on  a  scale  worthy  of  mention  is 
practically  impossible.  Primitive  man,  working 
by  himself  upon  nature  and  producing  a  few 
simple  products,  is  unorganized  in  his  activity 
and  effort,  but  his  labor  is,  nevertheless,  under 
some  guidance,  though  it  be  that  of  his  own 
undeveloped  brain.  There  is  in  this  case  of 
production  a  semblance  of  business  manage- 
ment. When  this  primitive  man  employs  the 
labor  of  another  man,  or  of  several  men,  to 
work  upon  his  land  and  with  the  capital  which 
he  possesses  or  has  the  use  of,  we  have  the 
principle  of  business  management  in  operation 
upon  a  much  larger  scale.  In  all  the  aspects 
of  production  —  in  agriculture,  mining,  manu- 
facture, transportation,  or  commerce  —  we  have 
another  agent  in  addition  to  those  which  we 
have  just  considered ;  we  have  business  man- 
agement. In  some  phases  of  production  this 
agent  is  a  very  minor  one,  while  in  others  it  is 

104 


BUSINESS  MANAGEMENT  105 

the  most  important  one.  This  agent  is,  there- 
fore, always  at  work,  in  some  proportion  or 
other. 

Importance  of  Business  Management.  —  As  we 
have  seen,  there  is  need  of  some  business  man- 
agement in  the  most  primitive  stage  of  economic 
life,  even  among  the  people  who  do  not  differ- 
entiate and  specialize  in  their  agents  of  pro- 
duction. As  economic  life  becomes  more 
advanced,  and  more  extensive  and  complex,  the 
agents  of  production  become  not  only  more 
important  but  also  more  specialized.  Now  four 
agents  stand  out  as  more  or  less  separate  and 
distinct,  and  each  of  these  agents  begins  to 
subdivide  itself  into  many  groups  and  sub- 
groups. We  now  have  many  different  grades 
of  labor,  and  each  grade  is  employed  along  a 
different  line  of  work.  We  have  land  used  for 
the  cultivation  of  wheat,  corn,  cotton,  trees, 
etc.,  as  well  as  for  all  the  various  kinds  of 
building,  mining,  and  transportation  uses.  We 
have  also  capital  invested  in  lands,  tools,  ma- 
chines, and  goods,  each  of  manifold  varieties. 
Modern  economic  life,  in  the  phases  of  both 
consumption  and  production,  has  seen  differ- 
entiation and  specialization  carried  to  a  wonder- 
fully great  degree.  And  with  all  these  changes 
in  economic  life  has  come  a  greater  need  for  a 
directing  and  connecting  force  —  for  business 


106    PRINCIPLES  OF  WEALTH  AND  WELFARE 

management  in  its  various  forms.  The  wants 
and  demands  of  the  consumer  have  become 
very  extensive  and  complex,  and  the  problems 
of  the  producer,  in  order  to  supply  utilities 
which  can  satiate  these  wants,  have  grown  to 
enormous  proportions.  The  demand  for  a 
guiding  force,  which  can  adjust  all  of  the  agents 
and  instruments  of  production  to  each  other 
and  to  the  demands  of  the  consumer,  has  be- 
come so  great,  that  business  management  has 
come  to  be  one  of  the  greatest  forces  of  the 
whole  economic  realm. 

Work  of  Business  Management.  —  Not  only 
are  the  problems  of  the  producer,  in  order  to 
meet  the  changing  demands  of  the  consumer, 
becoming  greater  and  more  complex,  but  many 
of  the  forces  and  methods  of  production  are 
also  at  the  same  time  changing.  Labor,  land, 
and  capital  are,  as  we  have  seen,  always  chang- 
ing in  both  quantity  and  quality.  The  problem 
of  their  supply  as  compared  with  the  demand 
for  them  is  ever,  therefore,  a  most  difficult  one. 
The  business  manager  must  assume  all  the  risks 
of  producing  goods  which  will  meet  with  the 
favor  of  the  consumer,  which  will  satiate  his 
many  and  even  fickle  wants.  The  demands  of 
the  consumer,  in  whom  fashion  is  a  constantly 
changing  force,  can  never  be  exactly  calculated. 
To  produce  goods  in  quantities  sufficient  to 


BUSINESS  MANAGEMENT  107 

supply  these  demands  and  not  to  glut  the 
market,  to  use  a  term  which  is  so  well  known 
on  the  market,  is  a  problem  of  exceedingly 
great  difficulty  and  importance. 

This  is,  however,  only  one  of  the  producer's 
many  most  perplexing  problems.  He  must  not 
only  supply  the  consumer's  present  wants  but 
also  help  to  create  in  him  new  and  different 
wants.  He  must  likewise  adjust  to  each  other 
all  of  the  agents  of  production  of  which  he 
makes  use,  and  this  is  a  very  delicate  task.  In 
order  to  sell  his  goods  to  the  consumer,  and 
make  profits  from  their  sale,  he  must,  as  a  rule, 
produce  them  at  a  minimum  cost.  If  the  pro- 
ducer is  in  a  field  in  which  there  is  strong  com- 
petition, in  which  he  must  compete  with  other 
able  producers  for  the  favor  of  the  consumer, — 
and  this  is  more  or  less  the  true  condition  of 
most  producers,  —  he  must  produce  his  goods  at 
a  lower  cost  in  order  to  outsell  his  competitors. 
If  the  producer  is  a  monopolist,  if  he  entirely 
controls  the  supply  of  a  certain  goods,  and, 
therefore,  has  no  present  competition,  he  like- 
wise must  produce  at  a  minimum  cost.  He 
must  produce  his  goods  at  a  low  cost  in  order 
to  sell  that  quantity  which  will  bring  maximum 
profits.  He  is  most  certainly  aware  of  the  fact 
that  the  consumer's  demands  vary  inversely  with 
the  price  which  the  producer  asks  for  his  goods. 


108    PRINCIPLES  OF  WEALTH  AND  WELFARE 

He  is  also  very  eager  to  keep  out  a  future 
competitor.  All  producers,  as  a  rule,  are,  there- 
fore, striving  to  produce  their  articles  at  the 
lowest  possible  cost  and  to  sell  them  to  the 
consumer  at  the  highest  possible  price.  To  do 
this  requires  the  greatest  possible  skill  in  man- 
aging the  agents  and  forces  of  production,  as 
well  as  the  demand  of  the  consumer. 

The  business  manager,  in  order  to  produce 
his  goods  in  the  most  economical  way,  is  ever 
making  experiments  with  his  agents  and  forces 
of  production.  How  much  labor  of  one  grade 
of  skill  and  how  much  of  another  he  shall  em- 
ploy with  a  certain  quantity  of  land  and  capital, 
is  to  him  a  daily  problem  of  no  small  conse- 
quence. How  much  capital  in  one  machine  or 
instrument  and  how  much  in  another,  this  is  like- 
wise a  vitally  important  and  constant  question. 
Shall  he  employ  negroes  or  whites,  non-union 
or  union  laborers  ?  Shall  he  make  use  of  the 
muscular  strength  of  man  and  animals  as  a 
motive  power  ?  Shall  he  use  water,  steam,  or 
electricity?  Shall  he  produce  one  kind  of 
manufactured  goods  or  another?  Shall  he 
create  transportation  or  commercial  services? 
Shall  he  produce  upon  a  small  or  upon  a  large 
scale  ?  These  are  some  of  the  many  problems 
which  always  confront  business  management, 
and  in  solving  some  of  these  problems  the 


BUSINESS  MANAGEMENT  109 

modern  business  realm  has  produced  such 
managers  as  Carnegie  and  Rockefeller,  indus- 
trial captains  the  like  of  which  the  world  has 
never  before  seen. 

Business  Management,  How  Productive.  — 
That  there  is  an  overwhelming  need  of  business 
management  in  every  field  and  phase  of  the 
production  of  wealth,  is  now  clear.  It  is  like- 
wise manifest  that  management  is  a  producing 
agent,  that  it  creates  a  part  of  every  conceivable 
article  of  consumption,  and  adds  utility  to  every 
article.  The  productiveness  of  this  agent,  like 
the  productiveness  of  labor,  land,  and  capital, 
depends  upon  its  own  qualities  or  inherent 
properties,  the  amount  of  these  qualities,  the 
method  employed  in  making  use  of  these,  and 
the  quantity  and  quality  of  the  other  agents 
employed  with  them.  The  inherent  properties 
of  this  agent  are,  however,  different  from  those 
of  the  other  agents ;  they  are  far  more  mental. 
To  be  sure,  the  properties  of  the  common 
laborer  as  an  agent  of  production  are  to  a  de- 
gree mental,  but  their  productive  power  is  very 
largely  dependent  upon  the  amount  of  muscular 
and  nervous  energy  and  strength  which  the 
individual  laborer  possesses.  The  productive 
power  of  the  business  manager  is,  on  the  other 
hand,  much  more  dependent  upon  his  mental 
skill  in  dealing  with  the  very  complex,  physical, 


1 10     PRINCIPLES  OF  WEALTH  AND  WELFARE 

and  mental  wants  of  the  consumer  and  with  all 
the  manifold  and  complicated  aspects  of  the 
agents  and  forces  of  production.  It  depends 
very  largely  upon  the  manager's  judgment  con- 
cerning men  and  things  and  his  foresight  in  the 
business  world.  The  productive  power  of  busi- 
ness management  likewise  depends  upon  the 
quantity  of  itself  and  of  the  other  agents  which 
it  can  make  use  of  —  the  quantities  of  labor, 
capital,  and  land —  and  also  upon  the  forms 
and  methods  which  the  management  adopts. 

Business  Management,  How  Productive:  (a) 
Quantity  and  Quality  of  Management  and  the  Other 
Agents.  —  As  we  have  already  said,  there  is  a 
certain  amount  of  business  management  in  all 
of  the  aspects  of  the  production  of  goods, 
whether  in  one  field  or  in  another,  and  whether 
upon  a  small  or  upon  a  large  scale.  That  the 
productiveness  of  this  agent  depends  upon  its 
quantity  as  well  as  its  quality  has  been  assumed. 
Let  us,  however,  make  some  further  statements 
concerning  this  point.  It  is  very  easily  con- 
ceivable that  in  a  certain  group  of  production 
there  can  be  too  much  of  management,  that  is 
as  compared  with  the  quantities  of  the  other 
agents  employed  in  this  group.  This  concep- 
tion is  in  the  main  very  ideal.  In  actual  busi- 
ness there  is  most  often  too  little  of  this  agent. 
An  increase  in  the  quantity  and  quality  of 


BUSINESS  MANAGEMENT  III 

business  management  in  most  groups  of  work 
is,  therefore,  greatly  to  be  desired.  It  means 
greater  and  greater  productive  capacity  and 
consequently  a  greater  and  greater  production 
of  wealth. 

As  yet  in  our  wonderful  economic  develop- 
ment we  have  not  upon  the  whole  produced 
commodities  of  this  class  in  excessive  supplies. 
We  have,  to  be  sure,  produced  an  enormous 
quantity  of  business  management  of  a  high 
grade,  but  we  have  need  of  a  still  greater  quan- 
tity of  it.  We  have  increased  our  supplies  of 
labor,  land,  and  capital,  at  almost  a  marvelous 
ratio,  and  these  ever  increasing  supplies  of  the 
other  agents  of  production  have  created  an  ever 
increasing  demand  for  managing  ability.  The 
fact  that  many  of  our  great  industrial  corpora- 
tions are  paying  an  individual  for  managing 
ability  a  salary  ranging  from  $50,000  to  $100,- 
ooo  per  year,  is  unmistakable  evidence  that 
business  management,  at  least  of  the  highest 
type,  does  not  exist  in  too  great  quantities. 
This  fact  is  also  partial  evidence  that  manage- 
ment is  a  very  extraordinary  producing  agent, 
for  in  many  instances  these  individual  managers 
produce  much  more  than  they  receive  in  salaries. 

The  productiveness  of  management  also  de- 
pends to  a  great  extent  upon  the  amount  of  the 
other  agents  employed  with  it.  Let  us  illustrate 


112    PRINCIPLES  OF  WEALTH  AND  WELFARE 

this  point.  The  manager  of  a  farm  of  one  hun- 
dred acres,  upon  which  are  worked  one  hundred 
agricultural  laborers  and  upon  which  is  em- 
ployed #20,000  of  capital,  cannot  produce  for 
himself  a  ten-thousand-dollar  salary,  it  makes  no 
difference  how  extraordinary  may  be  his  manag- 
ing ability.  If,  on  the  other  hand,  he  assumes 
the  management  of  a  much  greater  number  of 
acres,  of  a  much  greater  quantity  of  labor  and 
capital,  he  may  produce  goods  or  utilities  val- 
ued at  twice  the  above-mentioned  salary.  The 
amount  produced  in  either  case  will  depend 
upon  the  quantity  and  quality  of  his  managing 
ability,  his  productive  capacity,  and  upon  the 
quantity  and  quality  of  the  other  agents  em- 
ployed. 

Business  Management,  How  Productive:  (b) 
Form  of  Management.  —  The  forms  of  business 
management  are  varied,  but  for  the  most  part 
they  are  of  the  following  types :  individual,  pri- 
vate partnership, private  corporation  or  company, 
and  joint  stock  corporation.  The  individual 
may  manage  his  own  enterprise,  of  whatever 
kind,  by  himself.  He  alone  assumes  all  the 
responsibility,  bears  all  the  losses,  adjusts  the 
forces  of  production  and  consumption,  and  re- 
ceives the  pay  for  his  managing  ability,  as  well 
as  the  profits,  if  there  are  any.  This  individual 
may  unite  with  another  individual,  in  a  partner- 


BUSINESS  MANAGEMENT  113 

ship,  to  use  the  legal  term,  and  two  persons  in- 
stead of  one  now  supply  the  managing  talent 
required.  Several  persons  may  combine  their 
managing  ability,  as  well  as  their  capital,  into  a 
private  company.  The  business  may  be  carried 
on  by  all  the  members  of  the  company  or  by 
certain  members  chosen  for  this  purpose  by  the 
whole  body. 

The  most  important  type  of  the  organization 
of  business  management  is,  however,  the  joint 
stock  corporation.  It  is  this  form  which  has 
played  so  great  and  distinguished  a  part  in  our 
economic  life  and  thought  within  the  last  few 
years.  This  form  of  business  organization  is 
much  more  permanent  than  the  others;  it 
is,  in  fact,  a  practically  permanent  institution. 
The  individual  and  partnership  managers  die, 
and  their  business  enterprise  comes  to  an  end. 
This  is  also  more  or  less  a  characteristic  of  the 
private  corporation.  But  the  joint  stock  cor- 
poration goes  on,  though  managers  after  man- 
agers disappear,  and  though  certain  individual 
members  of  the  corporation  pass  away.  Not 
only  is  this  form  of  business  management,  as  a 
rule,  much  more  permanent,  but  it  is  also  much 
larger.  It  possesses  and  commands  the  use  of 
much  more  capital  and  business  talent  than 
can  any  of  the  other  forms  of  business  manage- 
ment. Its  capital  is  not  confined  to  that  of  a  few 


114    PRINCIPLES  OF  WEALTH  AND  WELFARE 

persons  and  the  amount  which  they  can  for  a 
time  borrow.  It  is  made  up  of  the  capital  of 
many  managers  and  of  the  public  to  a  greater  or 
less  extent,  for  any  individual  may  purchase  the 
bonds  and  stocks  of  the  corporation.  Under 
such  a  form  of  management  the  capital  is  sup- 
plied by  many,  at  times  by  many  thousands  of 
individuals,  and  the  responsibilities  of  the  busi- 
ness are  assumed  by  all  the  stockholders.  But 
the  stockholders,  being  too  numerous  to  carry 
on  the  business,  must  select  certain  ones  of 
their  number  as  managers  —  called  directors, 
president,  secretary,  treasurer,  and  committees. 
Form  of  Business  Management  :  (i)  Small  or 
Large  Scale  Production.  —  The  productive  power 
ofrbusiness  management  depends  not  only  upon 
its  quantity,  quality,  and  the  form  of  its  organi- 
zation, but  also  upon  the  scale  of  production. 
And  the  scale  of  a  business  enterprise  is  largely 
the  product  of  management,  not  of  labor,  land, 
and  capital ;  it  is  primarily  management  which 
determines  the  scale  of  production,  whether 
small  or  large.  To  be  sure,  the  amount  of 
capital  and  the  other  agents  have  much  to  do 
with  this  scale,  but  the  most  important  factor  in 
it  is  management.  For  the  most  part  produc- 
tion has  been  in  the  past  upon  a  small  scale, 
but  within  the  last  quarter  of  a  century  the 
tendency  to  large  scale  production  has  been 


BUSINESS  MANAGEMENT  115 

very  marked.  The  chief  reason  of  this  ten- 
dency, to  production  on  a  larger  and  still  larger 
scale,  is  the  fact  that  such  production  brings 
increasing  returns  not  only  to  the  management 
but  also  to  the  other  agents  employed.  It  means 
cheaper  and  cheaper  production,  and  produc- 
tion at  a  lower  cost  is  desired  by  consumers  and 
producers  alike,  for  it  increases,  or  at  least  tends 
to  increase,  the  welfare  of  the  one  and  the  profits 
of  the  other. 

Increasing  Returns  of  Production  on  a  Large 
Scale.  —  The  savings  or  economies  in  the  produc- 
tion of  goods  on  a  large  scale  are  many  and 
varied.  We  can  here  mention  and  discuss  in 
merest  outline  only  a  few  of  the  more  important 
ones.  The  large  organization  or  plant,  to  use 
a  business  term,  can  make  a  distinct  saving  in 
its  raw  material.  It  can  make  use  of  all  the 
by-products,  which  a  small  plant  cannot  use 
to  advantage  and  sets  aside  as  waste.  The 
large  plant  can  also  employ  the  best  and  most 
specialized  machines,  and  the  best  machines 
produce  at  the  lowest  cost.  It  can  afford  to 
make  many  and  costly  experiments  with  its 
machines,  displacing  many  older  ones,  in  order 
to  find  out  the  better  and  cheaper  ones.  The 
small  plant  cannot  afford  to  do  these  things. 
The  larger  plant  may  likewise  make  use  of  the 
most  skilled  labor;  it  can  afford  to  employ 


Il6    PRINCIPLES  OF  WEALTH  AND  WELFARE 

highly  specialized  and  skilled  laborers  who 
work  exclusively  along  their  own  special  lines. 
The  small  plant  must  make  use  of  one  laborer 
for  several  lines  of  work,  and  consequently 
cannot  use  his  labor  to  the  point  of  greatest 
advantage  or  in  the  most  economical  way. 

While  these  savings  or  economies  are  great, 
they  are  by  no  means  all  of  the  advantages 
which  the  large  producer  has  over  the  small 
one.  The  large  producer  buys  in  greater  quan- 
tities, and,  therefore,  secures  his  raw  material  at 
a  lower  price.  He  also  buys  his  transportation 
and  drayage  services  at  a  lower  cost.  In  sell- 
ing his  finished  goods  to  the  consumer  the  large 
producer  has  another  advantage,  a  saving  both 
to  himself  and  the  consumer:  he  can  always 
supply  the  demand,  and  though  he  may  sell  in 
large  quantities,  he  can  sell  at  the  highest  price. 
The  small  producer  cannot  always  supply  the 
demand,  and  in  consequence  he  cannot  sell  his 
goods  at  the  highest  price.  Production,  on  a 
large  scale,  therefore,  tends  to  bring  increasing 
returns,  while  that  on  a  small  scale  tends,  all 
things  being  equal,  to  decreasing  returns. 

All  of  these  economies  of  large  scale  pro- 
duction of  which  we  have  just  spoken  depend, 
however,  upon  the  success  of  the  business  man- 
agement, and  in  this  particular  the  smaller  or- 
ganization has  a  distinct  advantage  over  the 


BUSINESS  MANAGEMENT  1 17 

larger  one.  The  management  of  the  large  cor- 
poration is  most  often  divided  and  subdivided, 
and  of  necessity  so.  In  this  management,  di- 
vided as  it  is  and  must  be,  there  is  much  less 
of  unity  of  action,  there  is  much  less  of  personal 
responsibility  in  the  individual  managers  and 
submanagers,  and  there  is  much  chance  for 
friction  and  dishonesty.  In  short,  the  very  size 
and  complexity  of  its  management  may  at  times 
become  a  great  element  of  weakness  and  loss 
instead  of  one  of  strength  and  gain.  The 
gigantic  business  corporation  of  to-day  may 
become  subject  to  decreasing  returns,  as  much 
so  as  the  small  producer.  Its  very  magnitude 
may  become  its  greatest  disadvantage  and 
danger. 

Form  of  Business  Management:  (2)  Monopoly 
Production.  —  The  form  of  business  manage- 
ment, whether  upon  a  large  or  a  small  scale, 
may  be  monopolistic  or  competitive,  and  both 
types  are  as  old  as  management  as  a  producing 
agent,  as  old  as  civilized  man.  The  idea  of  a 
monopolistic  corporation  is  not,  therefore,  nec- 
essarily based  upon  its  size,  as  is  so  thoroughly 
believed  by  the  masses,  but  upon  the  unity  of 
its  management.  While  monopoly  production  is 
oftentimes  large  scale  production,  still  unity 
of  control  in  the  production  of  certain  goods, 
and  this  control  being  made  complete  and 


Il8    PRINCIPLES  OF  WEALTH  AND  WELFARE 

exclusive  as  far  as  the  production  of  the  goods  is 
concerned,  is  the  fundamental  idea  underlying 
all  monopoly  management. 

But  a  complete  and  exclusive  control  by  the 
producer  of  certain  goods  over  the  consumer  of 
them  is  practically  impossible.  The  control 
of  their  production  may  become  exclusive, 
though  this  does  not  often  happen,  but  the 
control  of  the  producer  over  the  consumer  really 
never  becomes  complete  and  exclusive.  The 
consumer  is  never  a  slave  to  the  producer  of 
any  one  kind  of  articles  of  consumption ;  he  has 
freedom  not  only  to  choose  the  quantities  of 
the  articles  which  he  consumes,  but  also  to 
choose  the  kind  of  goods  with  which  to  satiate 
his  wants.  We  can  more  easily  understand  this 
point  by  examining  an  illustration.  An  electric 
company  in  a  certain  city  may  for  the  time  have 
complete  control  of  the  manufacture  and  sale  of 
electricity  in  this  city,  but  this  monopoly  pro- 
ducer can  never  compel  the  people  to  buy  its 
goods  or  services.  The  consumer  may  use  gas 
or  oil  for  lighting  purposes,  may  use  the  muscular 
strength  of  animals  or  steam  for  motive  power, 
and  he  will  most  certainly  do  this  if  the  electric 
company  charges  very  excessive  prices  for  its 
goods.  Suppose  the  electric  corporation  en- 
larges itself  so  as  to  include  under  its  unified 
management  the  gas  company  and  the  steam 


BUSINESS  MANAGEMENT  1 19 

power  companies.  Its  control  is  now  greater 
and  more  complete,  but  it  is  not  yet  absolute, 
even  over  the  production  of  its  goods,  to  say 
nothing  of  the  freedom  which  the  consumer  still 
has  in  the  choice  of  the  kind  and  quantity  of 
goods  for  his  consumption.  If  the  consumer 
has  no  other  goods  from  which  to  choose,  and 
he  is  seldom  forced  into  such  a  situation,  he 
will  consume  less  of  these  articles,  in  case  the 
monopoly  producer  by  virtue  of  its  more  or  less 
complete  control  over  their  production  charges 
him  a  very  high  price  for  them.  Throughout  the 
whole  realm  of  production,  while  there  is  much 
of  the  practical  monopoly  type,  there  is  little, 
if  indeed  any,  of  the  absolute  monopoly  type. 

Kinds  of  Practical  Monopoly  Producers.  —  As 
we  have  just  said,  the  monopolistic  form  of 
business  management  is  very  old,  though  in  the 
popular  mind  it  is  a  distinctly  modern  institu- 
tion. Almost  throughout  the  history  of  govern- 
ments, we  find  the  monopoly  producer  who 
may  be  called  the  legal  monopolist,  and  this 
form  of  business  management  is  in  fact  created 
by  the  state.  By  virtue  of  a  charter  or  other 
document  issued  by  the  government,  certain 
persons  are  given  the  complete  and  exclusive 
control  of  the  production  and  sale  of  certain 
articles  of  consumption.  At  one  time  monop- 
olies of  this  type  have  been  very  numerous 


120    PRINCIPLES  OF  WEALTH  AND  WELFARE 

and  powerful.  At  another  time  they  have  played 
only  a  very  insignificant  part  in  production. 
To-day,  though  we  have  many  of  this  class  of 
monopolistic  producers,  the  government  at 
Washington  issuing  many  monopoly-conferring 
documents  bearing  the  name  of  patents  and 
copyrights,  they  do  not  contribute  a  great  part 
to  our  production  of  wealth. 

But  we  have  another  class  of  monopolies,  in 
the  creation  of  which  the  state  takes  no  direct 
part;  we  have  a  monopoly  formed  by  nature 
and  man  which  may  be  properly  called  the 
naturalistic  monopoly.  Nature  has  so  highly 
localized  a  few  of  her  valuable  mineral  products, 
as  for  instance  the  anthracite  coal  of  the  United 
States,  which  is  found  largely  in  a  few  adjoining 
counties  of  Pennsylvania,  that  man  by  means 
of  his  managing  talent  and  capital  can  more  or 
less  monopolize  the  production  and  sale  of  them. 
As  yet,  however,  this  product  is  by  no  means 
monopolized ;  the  largest  coal  producer  does 
not  control  more  than  50  per  cent  of  the  Ameri- 
can output  of  hard  coal.  Railway  transporta- 
tion, by  the  inherent  nature  of  its  business  and 
the  routes  it  makes  use  of,  may  also  be  some- 
what unified  in  its  control,  though  it  is  the 
managing  ability  and  the  capital  of  men,  rather 
than  nature,  which  are  the  great  and  vital  forces 
in  its  unification. 


BUSINESS  MANAGEMENT  121 

We  have  also  a  third  class  of  the  monopoly 
producer,  and  we  may  name  this  the  capitalistic 
one.  To  be  sure,  capital  and  management  play 
great  and  leading  parts  in  all  these  classes,  — 
in  the  legal,  naturalistic,  and  capitalistic  ones,  — 
but  in  the  last  type  of  monopoly  they  constitute 
the  most  fundamental  factors.  It  is  this  class 
which  has  played  so  important  and  distinguished 
a  part  in  our  great  industrial  development  of 
the  last  quarter  of  a  century.  It  is  this  class 
which  bears  the  popular  and  odious  name  of 
trusts.  It  is  to  this  type  that  the  famous  and 
powerful  Standard  Oil  and  the  United  States 
Steel  corporations  belong.  Brains  and  capital, 
working  together  under  the  all-pervading  mod- 
ern spirit  of  combination  and  concentration, 
have  been  the  creators  of  this  form  of  produc- 
tion, and  they  are  likewise  the  very  arteries  and 
blood  of  all  the  other  large  forms  of  production, 
whether  monopolistic  or  competitive. 

In  neither  the  naturalistic  or  the  capitalistic 
monopoly  is  the  control  of  the  producer  exclu- 
sive. The  control  of  the  most  powerful  ones  is 
only  from  65  per  cent  to  95  per  cent  complete, 
while  that  in  the  less  unified  ones  is  only  from 
50  per  cent  to  65  per  cent  complete.  Such  a  con- 
trol as  this,  however,  gives  the  manager  great 
influence  in  the  production  and  sale  of  all  the 
goods  of  his  special  kind  and  quality,  —  in  fact 


122     PRINCIPLES  OF  WEALTH  AND  WELFARE 

gives  him  almost  a  practical  monopoly,  so  far  as 
he  and  the  other  producers  have  power  over 
these  goods. 

Form  of  Business  Management:  (3)  Competi- 
tive Production.  —  So  strong  has  been  the  recent 
tendency,  in  our  own  country  at  least,  to  the 
formation  of  the  monopoly  organization,  and  so 
powerful  have  some  of  these  organizations  be- 
come, not  only  in  their  influence  over  other 
producers  of  the  same  kind  and  grade  of  goods 
and  the  consumers  of  these  goods,  but  also  in 
social  and  political  life,  that  public  opinion  has 
been  aroused  against  them  to  an  exceedingly 
high  pitch.  So  great  has  become  the  mo- 
nopoly principle  of  production  that,  in  the  minds 
of  many  people,  the  principle  of  competition  has 
become  endangered.  And  to  this  principle  of 
competition  have  been  assigned  very  wonderful 
properties.  It  is  popularly  supposed  to  possess 
the  magic  power  to  stimulate  to  greater  activity 
and  effort,  as  well  as  to  cure  all  the  wrongs  in 
the  whole  realm  of  the  production  of  wealth. 

Will  this  principle,  which  to  the  minds  of 
many  seems  so  marvelous,  and  which  upon  the 
whole  promotes  the  welfare  of  man,  be  anni- 
hilated ?  Will  the  monopoly  idea  alone  control 
in  production  ?  What  the  great  future  may 
bring  forth  we  dare  not  exactly  predict.  As  yet 
among  the  producers,  competition,  either  of  the 


BUSINESS  MANAGEMENT  123 

active  or  potential l  kind,  is  still  busily  at  work. 
In  the  year  1900,  there  were  in  the  United 
States  of  the  monopoly  form  of  producer  called 
trusts  less  than  two  hundred,  and  we  have  had 
this  principle  at  work  more  vigorously  and  to  a 
greater  extent  than  has  any  other  country.  Their 
total  annual  output  was  then  valued  at  about 
#1,660,000,000,  while  the  total  annual  output 
of  all  the  American  factories  was  worth  about 
$13,000,000,000.  This  means  that  in  that  year 
the  competitive  manufacturer  produced  goods 
valued  at  about  eight  times  as  much  as  those 
produced  by  the  monopoly  manufacturer.  Since 
1900  there  has  been  an  enormous  increase  in  the 
monopoly  form  of  production,  but  still  the  mo- 
nopolistic producer  works  only  along  a  compara- 
tively few  lines.  He  produces  transportation 
services.  He  also  produces  certain  staple 
articles,  such  as  steel  and  iron,  sugar,  oil,  to- 
bacco, gas,  and  electricity.  In  agriculture  and 
commerce  he  has  as  yet  played  an  insignificant 
part.  We  may  with  good  reason  expect  more 
and  more  of  the  monopoly  idea  of  production, 
for  it  means  as  a  rule  cheaper  and  cheaper 
production,  but  we  may  likewise  expect  that 
the  men  of  the  future  will  produce  also  along 

1  We  mean  by  potential  competition,  that  which  may  at  any 
time  organize,  embody  itself  into  some  form  of  production,  and  be- 
come active,  though  at  the  present  it  exists  only  in  the  minds  of  a 
few  business  men. 


124    PRINCIPLES  OF  WEALTH  AND  WELFARE 

the  lines  and  according  to  the  principle  of 
competition. 

Form  of  Business  Management:  (4)  Socialistic 
and  Cooperative  Production.  —  The  productive 
power  of  business  management  has  been  very 
greatly  increased  by  the  principle  and  practice 
of  combination ;  combination  of  managing 
ability  has  brought  wonderful  strength  and 
efficiency.  And  the  rewards  of  such  forms  of 
management  have  come  to  be  enormously  great. 
At  times  these  rewards  represent  in  fair  meas- 
ure the  productivity  of  management.  At  other 
times  the  manager  by  virtue  of  his  high  position 
in  production  takes  for  himself  too  large  a  part 
of  each  article  produced ;  he  pays  the  other 
agents  —  labor,  land,  and  capital  —  less  than 
they  earn  or  produce. 

This  tendency  to  greater  and  greater  pay  to 
business  management,  whether  it  be  fair  or  not, 
has  brought  forth  much  discussion  of  the  meth- 
ods of  management  and  much  feeling  against 
these  methods.  So  strong  has  this  feeling  at 
times  become  that  we  have  formulated  a  science 
of  economic  life,  called  socialism,  which  de- 
mands an  almost  complete  and  fundamental 
reorganization  of  society  and  its  business  forms 
and  methods.  The  points  of  chief  attack  by 
the  advocates  of  the  new  science  are  land,  capi- 
tal, and  management.  It  is  by  them  contended 


BUSINESS  MANAGEMENT  125 

that  the  first  two  of  these  instruments  of  pro- 
duction should  belong  entirely  to  the  state,  that 
the  laborer  should  supply  his  own  management, 
and  that  he  should  have  the  use  of  land  and 
capital,  in  quantities  as  great  as  he  desires,  at  a 
price  no  larger  than  that  which  is  necessary  to 
replace  the  wear  and  tear  of  them.  This  social- 
istic system  is,  however,  upon  the  whole  so 
visionary  and  its  foundation  so  unreal,  that  we 
shall  not  attempt  to  discuss  at  any  length  its 
means  and  methods  of  production.  That  some 
of  its  demands  have  been  granted,  no  one  can 
deny.  Governmental  ownership  and  manage- 
ment of  certain  fundamental  and  universal  in- 
dustries, as  the  postal,  telegraph,  and  railway 
systems,  and  governmental  regulation  and  con- 
trol of  many  private  industries, —  all  this  is  abun- 
dant proof  that  our  present  system  of  production 
has  incorporated  into  itself  not  a  few  of  the  ideas 
of  the  socialistic  system  of  production. 

There  are  other  reformers  who  demand  some 
changes  in  our  present  system  of  production, 
but  by  no  means  such  radical  ones  as  those  for 
which  the  socialists  are  calling.  They  believe 
in  the  fairness  and  the  soundness  of  the  private 
ownership  of  land  and  capital.  They  fully  rec- 
ognize that  land,  capital,  and  business  manage- 
ment, as  well  as  labor,  are  producing  agents. 
They,  however,  believe  that  common  labor,  as 


126    PRINCIPLES  OF  WEALTH  AND  WELFARE 

well  as  managing  labor,  should  enjoy  the  profits 
of  production. 

According  to  their  plan,  the  workers  together 
with  the  employers  are  to  manage  the  business, 
to  assume  all  of  the  risks  and  enjoy  all  of  the 
products ;  all  are  to  bear  their  parts  of  the  losses 
and  receive  their  parts  of  the  profits..  If  the 
cooperative  plan  of  production,  as  it  is  called, 
can  ever  be  successfully  carried  out,  the  problems 
of  the  distribution  of  wealth  will  become  much 
easier,  and  wealth  will  be  distributed  with  far 
greater  fairness  to  all  the  parties  involved.  That 
such  a  condition  is  to  be  greatly  desired,  we  shall 
find  abundant  evidence  under  the  section  treat- 
ing of  the  distribution  of  wealth.  Whether  the 
cooperative  plan  of  production  can  accomplish 
such  an  end  is,  however,  a  highly  debatable  ques- 
tion. The  principle  of  employer  and  employee 
working  together,  all  assuming  the  burdens  of 
management  and  sharing  its  products,  while  in 
some  respects  attractive  in  theory,  has  so  far 
worked  with  only  very  slight  success.  Coop- 
erative management  has  as  yet  been  seriously 
lacking  in  unity;  it  has  been  attended  by  much 
discord  and  failure.  It,  like  the  extreme  demo- 
cratic government,  in  which  one  man  is  equal  to 
another,  soon  becomes  a  management  of  a  cha- 
otic type.  We  must  have  more  and  more  of  the 
spirit  of  conciliation,  of  steadiness  and  honesty 


BUSINESS  MANAGEMENT  I2/ 

of  work,  and  of  obedience  to  those  who  by  merit 
are  our  superiors,  before  such  a  scheme  of  pro- 
duction, on  a  large  scale  at  least,  can  ever  be 
successfully  put  into  operation. 

QUESTIONS 

(1)  Is  there  an  equal  need  of  business  management  in 
farming,  manufacturing,  mining,  railroading,  merchandising, 
and  banking? 

(2)  Why  is   one  business  manager  paid  only   $1000  a 
year,  while  another  business  manager  receives   $75,000   a 
year? 

(3)  Suppose  you  are  a  cotton  manufacturer.   Would  you 
produce  cotton  cloth  upon  a  small  or  upon  a  large  scale  ? 

(4)  Suppose  you  are  the  manager  of  a  railway  corpora- 
tion.    Would  you  produce  railway  service  upon  a  small  or 
upon  a  large  scale  ? 

(5)  Would  you  prefer  to  manufacture  goods  under  com- 
petitive conditions  or  monopoly  conditions  ? 

(6)  Do  large  corporations  add  to  the  welfare  of  your 
community  ? 


C.    ASPECTS  OR  GROUPS  OF  PRODUCTION 
CHAPTER  VI 

AGRICULTURE    AND   MINING PRODUCERS   OF 

WEALTH 

Aspects  or  Groups  of  the  Production  of  Wealth. 

—  We  have  now  completed  our  analysis  of  the 
agents  and  forces  which -are  at  work  in  the  pro- 
duction of  wealth.  We  have  found  that  labor, 
land,  capital,  and  business  management  are  the 
chief  factors  or  agents  in  all  the  aspects  or 
groups  of  production.  It  is  now  necessary  to  take 
these  aspects  into  our  consideration,  and  to 
make  a  careful  analysis  of  them.  The  produc- 
tion of  wealth  divides  itself  into  the  following 
general  groups,  which  are  more  or  less  distinct : 
agriculture  and  mining,  manufacture,  trans- 
portation, and  commerce. 

Agriculture  and  Mining  the  First  Aspect  of 
Production.  —  The  history  of  mankind  is  full  of 
testimony  to  the  effect  that  agriculture  and 
mining  are  the  most  universal  phases  of  eco- 
nomic activity  and  effort.  In  the  most  primitive 
stages  of  life  above  that  of  the  savage  and  bar- 

128 


AGRICULTURE  AND  MINING  129 

barian,  the  tillage  of  the  soil  and  the  digging 
of  minerals  deposited  beneath  its  surface  are 
the  most  universal  of  all  the  occupations.  In 
the  most  advanced  industrial  stage  that  the 
world  has  yet  developed,  these  same  aspects 
of  production  occupy  the  energies  and  thoughts 
of  the  larger  number  of  men. 

Agriculture  is  still  to-day,  as  it  has  always 
been  in  our  own  country,  the  most  dominant 
aspect  of  business  life.  The  culture  of  corn, 
hay,  cotton,  and  wheat,  to  say  nothing  of  the 
enormous  number  of  the  other  agricultural  prod- 
ucts, is  the  absorbing  occupation  of  millions 
of  people ;  and  it  is  the  one  group  of  produc- 
tion in  which  vast  quantities  of  land,  capital, 
and  business  management  are  employed.  From 
the  American  fields  of  agriculture  come  the 
food  supplies  of  more  than  seventy-five  million 
Americans,  and  of  millions  of  the  inhabitants 
of  other  countries.  From  the  Southern  cotton 
fields  alone  come  more  than  70  per  cent  of  all 
the  raw  cotton  fiber  of  the  world. 

The  mining  industry  of  the  United  States, 
while  not  so  universal  and  absorbing  as  that  of 
agriculture,  is  one  of  our  greatest  fields  of  eco- 
nomic activity  and  effort.  The  extraction  from 
the  earth  of  coal,  iron,  copper,  gold,  petroleum, 
silver,  and  thousands  of  other  mineral  products 
employs  the  productive  power  of  enormous 


130    PRINCIPLES  OF  WEALTH  AND  WELFARE 

quantities  of  all  the  agents  of  production  and 
places  upon  the  markets  of  the  world  values 
amounting  annually  to  hundreds  of  millions  of 
dollars. 

Vital  Importance  of  this  Aspect  or  Group  of 
Production.  —  Production  in  all  of  its  higher 
aspects  is  absolutely  dependent  upon  this  group 
—  that  of  agriculture  and  mining.  From  this 
group  of  production  and  its  subgroups  come 
all  the  raw  materials  out  of  which  are  created 
the  manifold  forms  and  qualities  of  our  wealth. 
From  the  fields  of  agriculture  come  all  of  the 
numerous  varieties  of  our  foods;  and  they  range 
from  the  coarsest  vegetables,  breads,  and  meats 
to  the  most  delicate  morsel.  Our  articles  of 
clothing,  of  whatsoever  form  and  degree  of  fine- 
ness, come  from  the  raw  materials  which  are 
supplied  by  the  farms,  largely  by  the  cotton 
fields  and  sheep  pastures.  Our  houses,  tools,  and 
machines,  of  any  form  and  quality,  and  our  fuel, 
in  the  shape  of  wood  and  coal,  —  all  these  forms 
of  wealth  come  from  the  forests  and  the  mines. 

The  Forms  of  Wealth  created  by  Agriculture 
and  Mining:  Elementary  Utilities. — As  we  have 
already  suggested,  the  forms  of  wealth  or  utili- 
ties which  are  created  in  this  group  of  pro- 
duction are  elementary.  The  products  of  the 
agriculturist  and  the  miner  are,  therefore,  ele- 
mentary utilities.  This  group  of  production 


AGRICULTURE  AND  MINING  131 

brings  forth  the  supply  of  the  raw  material  of 
the  world  ;  and  this  raw  material,  though  for 
the  most  part  of  the  simplest  and  most  ele- 
mentary forms,  is  the  foundation  upon  which 
all  the  other  forms  of  wealth  are  constructed. 
Let  us  consider  some  illustrations.  The  piece 
of  beautiful  Swiss  embroidery,  that  sells  on 
the  market  for  $20,  is  made  of  a  pound  of  North 
Carolina  cotton  which  sells  for  12  cents.  The 
still  more  beautiful  lace,  that  sells  for  more 
than  $100,  is  made  of  a  pound  of  South  Carolina 
cotton  which  sells  for  15  cents.  The  most  deli- 
cate dish  of  the  fastidious  millionaire  is  made 
upon  the  foundation  of  Dakota  flour,  which  sells 
at  4  cents  a  pound.  The  magnificent  locomo- 
tive, which  carries  a  train  of  cars  from  New 
York  City  to  Chicago  in  seventeen  hours,  is 
constructed  out  of  the  simple  iron  taken  from 
the  Pennsylvania  mines. 

Agriculture  and  Mining,  How  Productive: 
Method  and  Organization.  —  That  method  and 
organization  play  a  vitally  important  part  in  the 
productive  power  of  each  agent  of  production, 
we  have  already  agreed.  That  they  should  play 
a  great  part  in  the  products  of  any  group  of 
production,  needs  no  special  argument.  The 
farmer,  who  tills  his  soil  by  means  of  his  own 
hands  and  the  crudest  tools,  reaps  but  a  small 
product.  But  the  farmer  who  employs  upon 


132    PRINCIPLES  OF  WEALTH  AND  WELFARE 

his  lands,  in  addition  to  his  own  labor,  a  suf- 
ficient quantity  of  all  the  other  agents, — a 
sufficient  amount  of  capital  and  business  man- 
agement,—  reaps  a  much  greater  product  for 
himself  and  the  other  agents.  Labor  and  capi- 
tal employed  upon  the  cultivation  of  agricultural 
products,  just  as  much  as  labor  and  capital 
used  in  any  other  group  or  subgroup  of  pro- 
duction, create  products  largely  in  proportion 
to  the  method  of  their  employment.  And  this 
method  is  determined  by  the  farmer  as  a  busi- 
ness manager,  rather  than  by  the  farmer  as  a 
laborer.  Business  management  is,  therefore,  a 
vitally  important  agent  in  agriculture.  It  is 
this  agent  which  determines  the  amount  of 
capital  used  upon  the  soil  in  the  shape  of 
machinery  and  fertilizers,  which  determines  the 
kind  of  crop  planted,  and  which  determines  the 
number  and  efficiency  of  the  laborers  employed. 
On  every  hand  we  see  farmers  who,  though 
they  toil  with  all  of  their  physical  energies, 
reap  exceedingly  small  harvests.  They  do  not 
use  a  sufficient  amount  of  skill,  intelligence, 
and  judgment,  and  these  qualities  are  just  as 
necessary  in  the  group  of  production  called 
agriculture  as  they  are  in  any  other  group. 

Method  and  organization  are  just  as  vitally 
important  in  mining  as  they  are  in  agriculture. 
The  miner  who  employs  nothing  but  his  mus- 


AGRICULTURE  AND  MINING  133 

cular  strength  and  energy  and  a  crude  pick 
brings  forth  from  the  depths  of  the  earth  only  a 
small  product.  But  the  miner  who  makes  use 
of  capital  in  the  shape  of  the  most  efficient 
machinery,  who  makes  use  of  managing  intelli- 
gence and  judgment,  as  well  as  muscular 
strength  and  energy,  produces  great  and  valu- 
able quantities  of  mineral  products. 

QUESTIONS 

(1)  Why  is  agriculture  the  first  and  most  important  as- 
pect of  production  on  the  part  of  almost  every  people  ? 

(2)  Is  it  possible   for   the   agriculturist  to  become  a 
millionaire  ? 

(3)  A  man  has  two  adjoining  cotton  plantations  of  exactly 
the  same  size.     Upon  one  is  grown  one  hundred  bales  of 
cotton;  upon  the  other  fifty  bales.    Why  the  difference? 

(4)  Are  the  minerals  of  our  country  of  great  importance 
and  value?    Could  we  do  without  them? 


CHAPTER  VII 

MANUFACTURE  —  A    PRODUCER    OF   WEALTH 

Vital  Importance  of  Manufacture.  —  The  vast 
quantities  of  raw  material  which  are  supplied  by 
the  agriculturist  and  miner  must  be  transformed 
into  higher  form  utilities  before  they  can  be  of 
greatest  service  and  pleasure  to  man.  The 
consumer  does  not  eat  wheat  in  its  raw  or 
elementary  form.  It  must  be  transformed  by 
the  miller  into  flour,  and  the  flour  must  be  con- 
verted into  bread.  Raw  cotton  fiber  cannot 
satiate  man's  want  for  clothing.  It  must  be 
carded,  spun,  and  woven ;  it  must  be  made  into 
some  form  of  cloth  before  man  wears  it  upon 
his  body.  From  the  cotton  fields  it  must  go  to 
the  gin,  where  the  fiber  is  separated  from  the 
seed.  From  the  gin  it  must  go  to  the  carding 
room,  where  the  fiber  is  straightened.  From 
the  carding  room  it  must  go  to  the  spinning 
machine,  where  this  straightened  fiber  is 
stretched  and  twisted  into  thread  or  yarns. 
From  the  spinning  machine  it  must  go  to  the 
loom,  where  it  is  woven  into  cloth.  From  the 
weaving  room  it  must  go  to  the  bleaching  and 

134 


MANUFACTURE  .    135 

dyeing  rooms,  where  it  receives  the  desired 
color.  In  all  of  these  stages  is  the  manufac- 
turer ;  in  all  of  these  stages  is  the  man  who  by 
means  of  all  of  the  agents  of  production  trans- 
forms, time  and  again,  the  elementary  forms  of 
cotton  until  they  become  the  thousands  of  vari- 
eties of  the  higher  forms  of  cotton  fabric.  This 
life  history  of  the  cotton  fabric  is  substantially 
the  life  history  of  every  other  kind  of  finished 
goods. 

The  Forms  of  Wealth  created  by  Manufacture: 
Higher  Form  Utilities.  —  As  we  have  already  said, 
production  is  a  process  of  creating  forms  of 
things,  not  material  things  themselves.  As 
production  creates  utilities,  rather  than  material 
things,  so  consumption  makes  use  of  these 
utilities ;  and  neither  process  creates  or  destroys 
matter.  The  agriculturist  and  miner  produce 
forms  of  utilities  or  wealth  which  we  call  ele- 
mentary. The  manufacturer  changes  these 
elementary  forms  into  higher  forms ;  he  creates 
the  higher  form  utilities.  Let  us  illustrate  this 
point.  The  farmer  produces  forms  of  wealth 
called  raw  cotton,  and  these  forms  are  now  sell- 
ing on  the  market  at  1 1  cents  a  pound.  The 
manufacturer,  by  changing  one  pound  of  this 
raw  material  or  elementary  form  into  its  high- 
est forms  or  utilities,  produces  a  product  which 
sells  for  hundreds  of  dollars.  The  farmer  in 


136    PRINCIPLES  OF  WEALTH  AND  WELFARE 

producing  the  raw  cotton  fiber  creates  value  in 
it.  The  manufacturer  in  transforming  this  raw 
material  into  higher  forms  creates  more  and 
more  value  in  it ;  and  the  value  he  creates  in  it 
depends  upon  the  form  of  his  products. 

Manufacture,  How  Productive:  Method  and 
Organization.  —  We  have  seen  that  method  and 
organization  are  great  factors  in  the  production 
of  wealth,  whether  of  one  group  or  another. 
They  play  vital  parts  in  all  the  aspects  of  hu- 
man life,  in  the  political,  intellectual,  religious, 
as  well  as  in  the  economic  aspect ;  the  imple- 
ments of  work  and  the  method  of  their  employ- 
ment are  fundamentally  important  in  all  the 
aspects  of  human  life  and  activity.  The  manu- 
facturer, or  he  who  changes  the  elementary 
forms  of  wealth  into  their  higher  forms,  is  pro- 
ductive largely  in  proportion  to  the  method 
according  to  which  he  works.  In  the  trans- 
formation of  goods  from  lower  forms  into  higher 
forms,  he  employs  labor,  land,  capital,  and 
business  management,  and  the  product  of  each 
of  these  agents  depends  upon  its  inherent 
productive  power,  upon  its  supply  as  compared 
with  the  demand  for  it,  and  upon  the  method 
of  its  employment.  The  manufacturer,  who 
makes  use  of  unskilled  and  inefficient  labor  and 
business  management,  and  uses  antiquated  and 
inefficient  tools  and  machines,  produces  a  small 


MANUFACTURE  137 

amount,  and  he  in  consequence  produces  his 
goods  at  a  high  cost.  But  the  manufacturer, 
who  makes  use  of  the  greatest  possible  skill 
and  efficiency  in  his  labor,  machinery,  and 
business  management,  produces  a  great  prod- 
uct, and  at  a  lower  cost  per  unit  of  goods. 

Whether  the  organization  of  manufacture 
shall  be  large  or  small  depends  to  a  considerable 
degree  upon  the  special  line  of  production. 
The  advantages  and  disadvantages  of  produc- 
tion upon  a  large  scale  as  compared  with  those 
of  production  upon  a  small  scale,  we  have  al- 
ready considered.  These  advantages  and  dis- 
advantages we  have  examined  under  the  head 
of  business  management  as  a  producing  agent. 
Under  that  head  we  have  stated  that  produc- 
tion upon  a  large  scale  is  as  yet  confined  very 
largely  to  only  two  general  groups  or  aspects 
of  production  —  to  manufacture  and  transpor- 
tation. As  yet  agriculture  and  commerce 
remain  groups  of  production  in  which  the 
organization  of  business  management  is  for  the 
most  part  very  small.  And  in  the  group  which 
we  call  manufacture  the  organization  is  by  no 
means  universally  large.  In  fact  large  scale 
manufacture  exists  only  in  a  few  special  fields 
—  in  the  production  of  some  of  the  very  neces- 
sary and  staple  goods,  such  as  iron,  steel, 
oil,  gas,  sugar,  etc.  In  many  of  the  fields  of 


138    PRINCIPLES  OF  WEALTH  AND  WELFARE 

manufacture  the  organization  of  business  man- 
agement is  still  small.  That  a  more  intelligent 
method  would  greatly  aid  many  of  these  small 
manufactures,  needs  no  discussion.  That  the 
principle  of  combination  and  concentration,  if 
intelligently  applied,  would  also  greatly  add  to 
their  productivity  seems  to  us  to  be  equally 
apparent. 

QUESTIONS 

(1)  Abolish  all  the  manufactures  of  the  United  States, 
compel  all  of  the  American  people  to  become  producers  of 
raw  material.     How  would  our  life  be  affected  ? 

(2)  The  Southern  states  grow  annually  from  ten  to  thir- 
teen million  bales  of  raw  cotton.     Suppose  that  all  of  this 
vast  quantity  of  raw  material  could  be  manufactured  in  the 
Southern  states.     What  effect  would  this  have  upon  Southern 
life? 

(3)  What  effect  do  skilled  laborers  and  efficient  machines 
have  upon  the  manufacture  of  cotton,  iron,  steel,  gas  ? 

(4)  What  effect  would  combination  and  concentration 
have  upon  the  manufacture  of  cotton  in  the  South  ?  in  New 
England  ? 


CHAPTER   VIII 

TRANSPORTATION A  PRODUCER  OF  WEALTH 

Fundamental  Importance  of  Transportation. — 

As  we  have  said,  economic  life  is  largely  social, 
both  in  the  aspect  of  the  consumption  of  wealth 
and  that  of  its  production.  The  production  of 
wealth  is  especially  a  social  process.  No 
one  producer  can  live  unto  himself  alone.  The 
Robinson  Crusoe  producer,  or  consumer,  has 
never  existed  in  actual  life ;  his  existence  is 
only  imaginary.  Man  in  the  business  realm 
possesses,  to  be  sure,  his  own  individuality,  but 
this  individuality  is  surrounded  by  other  individ- 
ualities. These  economic  beings,  as  consumers, 
have  their  many  and  varied  wants,  and  they 
likewise  have  their  various  abilities  as  producers, 
whether  they  work  upon  nature  by  means  of 
their  own  energy  alone,  or  by  means  of  capital, 
as  well  as  their  own  energy. 

Some  few  consumers  may  produce  the  kind 
of  utilities  which  their  simple  wants  demand 
and  in  sufficient  quantities  to  satiate  these  wants, 
but  in  an  economic  society  which  is  at  all  ad- 
vanced and  complex  it  is  absolutely  impossible 

139 


140    PRINCIPLES  OF  WEALTH  AND  WELFARE 

for  any  individual  consumer  to  produce  all,  or 
even  many,  of  the  goods  for  which  his  wants 
call.  He  should  certainly  produce  as  much 
wealth  in  some  form  or  other  as  he  consumes ; 
otherwise  he  robs  the  society  in  which  he  lives. 
But  that  he  should  produce  the  exact  form  of 
the  goods  he  consumes  is  not  at  all  necessary, 
and  this  would  for  the  most  part  be  a  wasteful  use 
of  his  energy  and  the  other  agents  of  production 
which  he  employs.  Under  the  modern  system  of 
producing  wealth,  and  also  in  the  more  advanced 
systems  of  the  ancient  or  mediaeval  peoples, 
one  man  produces  as  much  of  a  special  form  of 
wealth  as  his  energy  and  the  other  agents  which 
he  possesses  can  produce;  and  another  man,  situ- 
ated in  a  different  location  and  amid  different 
natural  forces  and  social  surroundings,  produces 
as  much  of  another  goods  as  his  energy  and  the 
other  agents  of  which  he  makes  use  can  pro- 
duce. It  may  be  that  the  special  products  of 
each  man  are  in  part  consumed  to  satiate  his 
own  wants.  But  what  becomes  of  the  surplus  ? 
The  other  man  has  wants  for  it  and  will  con- 
sume it,  if  he  can  obtain  possession  of  it.  It 
may  be,  however,  that  both  of  the  individual 
producers  create  goods  which  they  do  not  need 
in  the  satiation  of  their  own  wants.  What 
becomes  of  their  products?  Other  men,  the 
producers  of  other  goods,  have  wants  for  these 


TRANSPORTATION  141 

and  will  consume  them,  if  they  can  obtain 
them.  The  transportation  of  these  various 
surplus  products  from  one  producer  to  another, 
from  producer  to  consumer,  is,  therefore,  a  most 
vitally  important  problem. 

Relation  of  Transportation  to  the  Production  of 
Wealth  :  Place  Utilities.  —  Transportation  is  not 
only  a  fundamentally  important  element  in  our 
economic  or  business  life,  but  it  is  also  a  pro- 
ducer of  wealth.  And  as  a  producer,  a  trans- 
portation system  makes  use  of  all  the  agents  of 
production  of  which  we  have  spoken.  It  has 
need  for  labor,  land,  capital,  and  business  man- 
agement, and  each  of  these  agents  produces 
a  part  of  every  transportation  service.  By  way 
of  illustration,  let  us  consider  the  railway.  The 
service  of  the  Southern  or  the  Pennsylvania 
railway,  in  transporting  an  individual  man  or  a 
pound  of  cotton  cloth  from  one  place  to  another 
place  one  mile  distant,  is  in  part  due  to  the  labor 
of  the  company,  in  part  due  to  its  land,  its  capi- 
tal, and  its  business  management. 

Let  us  put  these  four  agents  to  work  upon 
an  acre  of  cotton  lands,  in  a  cotton  factory, 
and  in  a  railway  system.  In  the  culture  of 
cotton  these  agents  produce  utilities  which  we 
call  elementary  in  their  forms.  In  the  factory 
some  of  these  simple  and  elementary  forms  are 
made  into  higher  forms,  into  all  kinds  of  cotton 


142    PRINCIPLES  OF  WEALTH  AND  WELFARE 

fabrics.  These  elementary  forms  must  be 
transported  from  the  farm  to  the  factory,  and 
the  finished  fabrics  must  be  taken  from  the 
factory  to  the  consumer,  or  to  the  merchant, 
who  acts  as  an  agent  for  the  consumer.  In 
either  case,  transportation  has  not  only  rendered 
a  service,  but  it  has  also  produced  in  the  goods 
certain  utilities  ;  it  has  added  utilities  both  to  the 
raw  cotton  fiber  and  the  finished  cotton  fabric. 
It  has  carried  these  goods  from  a  place  in 
which  the  demand  for  them  is  small  to  a  place 
in  which  the  demand  for  them  is  great. 
These  utilities,  which  the  transportation  agent 
creates,  we  call  place  utilities.  And  in  our 
economic  realm  goods  are  not  completely  and 
finally  produced  until  they  are  placed  at  the 
door  of  the  consumer  of  them. 

Relation  of  Transportation  to  Producer  and  Con- 
sumer; Satiation  of  Old  Wants  and  Creation  of 
New  Wants.  —  Transportation  not  only  adds 
values  to  certain  goods, —  creates  place  utilities 
in  these  goods,  —  but  it  also  creates  more  and 
more  wants  for  the  goods.  It  is  just  as  mighty 
a  force  to  the  consumer  as  it  is  to  the  producer. 
It  is  in  itself,  as  we  have  already  said,  a  pro- 
ducer of  goods  or  utilities.  And  the  producer 
is  both  the  master  and  the  servant  of  the 
consumer.  Let  us  consider  an  illustration. 
The  breakfast  table  of  the  consumer  may  now 


TRANSPORTATION  143 

be  supplied  with  fruits  grown  in  every  quarter 
of  the  globe  and  during  various  seasons  of  the 
year.  Until  very  recent  times  the  daily  want 
for  fruits  on  the  part  of  the  consumer  could 
not  possibly  be  satiated ;  the  consumer  himself 
could  produce  only  a  few  varieties  of  fruits,  and 
that  too  only  for  a  very  short  season.  A  great 
and  complicated  transportation  system  must  be 
worked  out  and  put  into  successful  operation 
before  the  consumer  in  New  York  City  can 
daily  enjoy  the  products  of  Florida  and  Maine, 
of  Europe  and  Africa,  of  South  America,  and  all 
the  other  parts  of  the  globe.  Transportation 
is,  therefore,  the  greatest  mechanism  of  bringing 
producer  and  consumer  together,  and  is  con- 
sequently one  of  the  greatest  means  of  eco- 
nomic progress  and  civilization.  It  has  always 
been  and  will  continue  to  be  among  the  world's 
most  universal  and  powerful  means  of  producing 
wealth  and  welfare. 

Transportation,  How  Productive :  (a)  Instruments 
of.  —  That  the  productive  power  of  transporta- 
tion depends  upon  its  means  or  instruments  of 
transportation,  as  well  as  upon  their  extent  and 
equipment,  requires  no  argument.  But  what 
are  these  means  ?  Sleds,  carts,  and  wagons, 
drawn  by  animal  power,  have  always  been  in- 
struments of  transportation.  And  boats  and 
ships,  propelled  by  man's  muscular  power  or  by 


144    PRINCIPLES  OF  WEALTH  AND  WELFARE 

the  mighty  forces  of  wind  and  steam,  are  means 
of  transportation  as  old  as  man  himself,  and 
they  are  still  most  important  instruments. 
It  is  the  modern  steam  or  sail  ship,  which  is 
the  instrument  whereby  all  goods  are  trans- 
ported across  large  bodies  of  water  —  lakes, 
seas,  and  oceans.  It  is  also  the  instrument  of 
transportation  along  rivers  and  canals.  The 
most  important  and  extensive  modern  instru- 
ment of  transportation  is,  however,  the  railway, 
either  of  the  steam  or  the  electric  type.  While 
many  of  the  other  instruments  of  transportation 
are  very  old,  this  means  is  distinctly  a  modern 
one ;  its  whole  life  covers  less  than  a  century. 
Though  the  most  modern  of  all  the  instru- 
ments of  transportation,  its  development  has 
been  the  most  marvelous  and  its  productive 
power  the  greatest.  The  steam  railway  system 
of  our  own  country,  though  it  had  its  beginnings 
in  1828,  had  by  1900  grown  to  a  mileage  of  about 
200,000,  and  it  was  possessed  of  all  the  equip- 
ment necessary  for  such  a  mileage. 

The  Railway  System  of  the  United  States  a  Fun- 
damental Instrument  in  all  the  Aspects  of  our 
Life.  —  This  railway  system  has  not  only  had  a 
marvelous  growth  within  itself,  but  it  has  also 
been  one  of  the  greatest  of  all  our  means  of 
production;  it  has  been  one  of  the  greatest 
factors  in  our  truly  wonderful  economic  develop- 


TRANSPORTATION  145 

ment.  It  has  aided  and  stimulated  all  the 
aspects  of  our  life.  In  fact,  it  has  revolution- 
ized it.  It  has  bound  together  into  one  eco- 
nomic community  a  vast  and  varied  territory.  It 
has  made  it  possible  for  the  farmer  to  explore 
new  acres,  the  miner  to  discover  new  beds  of 
minerals,  and  the  manufacturer  to  produce  new 
supplies.  It  has  been  the  magic  power  in  caus- 
ing towns  and  cities  to  spring  into  existence 
and  in  making  many  individuals  prosperous 
and  rich,  while  the  lack  of  its  facilities  has 
caused  others  to  remain  poor.  The  railway 
system  of  our  country  has  not  only  accom- 
plished this  much,  but  it  has  also  concentrated 
and  unified  the  intellectual,  political,  and  social 
aspects  of  our  life.  It  has  caused  the  Atlantic 
section  to  be  joined  with  the  great  valley  of  the 
Mississippi,  and  it  has  bound  these  two  vast 
regions  to  the  far  West.  It  has  had  much  to 
do  in  making  all  of  this  vast  and  highly 
diversified  area  into  one  government  and  one 
people. 

Transportation,  How  Productive:  (b)  Form  of 
Organization  and  Management.  —  The  form  of 
business  management  in  transportation, —  in 
the  production  of  place  utilities,  —  as  in  the 
other  groups  of  production,  is  of  vital  impor- 
tance. The  very  organization  of  the  transpor- 
tation facilities  is  in  itself  a  great  producing 


146    PRINCIPLES  OF  WEALTH  AND  WELFARE 

agent,  and  this  is  especially  characteristic  of 
long  distance  overland  transportation.  This 
fact  has  been  proven  time  and  again  by  our  own 
experiences.  In  the  early  history  of  the  Ameri- 
can railways,  in  fact  during  the  first  fifty 
years  of  their  existence,  we  had  no  less  than 
hundreds  and  thousands  of  different  systems. 
Each  small  road  was  independently  managed ; 
it  had  its  own  schedules,  rules,  and  rates ;  and 
the  trains  of  one  system  made  no  connections 
with  those  of  another  system.  The  time  re- 
quired for  the  transportation  of  passengers 
and  freight  from  Boston  to  Washington,  for 
instance,  was  necessarily  very  long,  and  the 
cost  of  this  transportation,  including  the  cost 
of  many  transfers  from  one  system  to  another, 
was  in  consequence  very  great.  Such  a  system 
was  beyond  any  doubt  most  inefficient.  It  was, 
to  be  sure,  better  than  no  railway  transporta- 
tion at  all,  but  the  very  form  of  its  business 
management  was  a  great  hindrance  to  its  pro- 
ductive power.  There  was  no  unity  of  manage- 
ment. There  was  also  little  thought  on  the 
part  of  the  management  to  serve  the  larger 
interests  of  the  producer  and  the  consumer, 
and  both  of  these  were  demanding  better  and 
greater  transportation  facilities. 

The  time,  however,  came  when  the  railway 
managers  must   yield  to  such   demands,   must 


TRANSPORTATION  147 

make  attempt  to  supply  such  wants,  and  they 
themselves  began  to  recognize  the  great  pro- 
ductive power  of  a  new  and  larger  form  of  busi- 
ness management.  Now  we  have  the  principle 
of  combination  and  concentration  vigorously  at 
work  in  the  railway  world.  Many  small  inde- 
pendent roads  are  now  combined  into  one 
large  system.  And  this  process  of  combination 
has  gone  on  and  on,  until  at  present  we 
have  in  the  entire  United  States  but  six 
or  seven  different  systems,  and  these  sys- 
tems have  more  or  less  of  an  agreement 
as  to  schedules,  rates,  and  connections.  To- 
day we  can  cross  our  vast  continent  without 
a  change  of  cars  and  within  the  remarkably 
short  space  of  three  days.  More  than  this, 
the  whole  system  of  inland  transportation  has 
within  a  short  period  increased  its  efficiency  a 
thousand  fold.  While  this  increase  of  produc- 
tivity has  brought  great  returns  to  the  trans- 
portation managers,  it  has  also  brought  great 
returns  to  the  consumers  of  transportation  serv- 
ices. The  saving  in  time  is  by  no  means  the 
only  economy,  for  rates  of  transportation 
have  greatly  decreased.  It  now  costs  less  to 
go  from  New  York  to  San  Francisco  than  it 
did  forty  years  ago  to  go  from  New  York  to 
Chicago. 


148    PRINCIPLES  OF  WEALTH  AND  WELFARE 

QUESTIONS 

(1)  How  much  is  the  consumer  of  beef  influenced  and 
benefited  by  transportation  services  ? 

(2)  How  much  is  the  producer  of  sugar  influenced  and 
benefited  by  transportation  services? 

(3)  Do  railways  produce  wealth? 

(4)  Do  railways  produce  welfare? 

(5)  Would  you  prefer  that  we  have  many  independent 
and  disconnecting  railroads  or  one  great  system  of  railroads  ? 

(6)  There  are  at  present  in  the  United  States  six  or 
eight  great  systems  of  railways.     Do  you  think  that  these 
great  combinations  are  for  our  wealth  and  welfare  ? 


CHAPTER  IX 
EXCHANGE:  COMMERCE  —  A  PRODUCER  OF  WEALTH 

Vital  Importance  of  Commerce.  —  We  have 
just  seen  what  a  great  and  vital  part  transpor- 
tation plays  in  the  production  of  wealth.  But 
along  with  transportation,  and  in  vitally  close 
connection  with  it,  there  is  another  very  impor- 
tant instrument  or  means  of  producing  wealth ; 
and  this  we  call  commerce  or  exchange.  This 
group  of  production  is  also  fundamentally  and 
vitally  connected  with  those  of  agriculture  and 
manufacture.  In  consequence  of  the  difference 
in  individual  capacity  and  in  natural  and  social 
surroundings,  different  economic  persons  and 
localities  can  produce  certain  products  much 
more  efficiently  and  cheaply  than  they  can 
others.  If  these  different  products  can  with 
facility  be  exchanged,  both  the  consumer  and 
the  producer  of  them  will  be  very  greatly  bene- 
fited. Without  such  exchange  of  goods  be- 
tween persons  and  communities  economic  life 
remains  primitive  and  undeveloped.  In  the  past 
there  have  been  individuals,  and  there  are  still 
not  a  few,  who  produce  practically  every  article 

149 


150    PRINCIPLES  OF  WEALTH  AND  WELFARE 

which  they  consume.  They  make  few  exchanges 
of  products ;  they  are  economically  self-sufficient 
and  independent.  But  such  people,  however, 
have  no  economic,  social,  or  intellectual  prog- 
ress. They  are  "  Jacks-at-all-trades,"  and  be- 
come proficient  and  skilled  in  none.  They  do 
not  specialize  in  their  activity,  and  consequently 
fail  to  acquire  that  efficient  skill  which  comes 
alone  from  specialization. 

Commerce  in  Relation  to  Production  :  Time 
Utilities.  — The  modern  tendency  everywhere  is, 
however,  toward  a  greater  and  greater  specializa- 
tion in  the  production  of  products  and  a  greater 
and  more  extensive  exchange  of  products.  The 
individual  possesses  special  aptitudes  and  skill, 
as  well  as  special  powers  of  nature  with  which  to 
work.  He  has  great  varieties  of  creative  power, 
of  soil,  climate,  and  mineral  deposits.  One  man 
can  produce  certain  goods  at  the  minimum  cost, 
while  another  can  produce  the  same  goods  at 
the  maximum  cost.  The  ideal  is  unquestionably 
for  each  producer  to  make  that  form  of  goods 
which  he  can  make  best  and  cheapest,  and  for 
each  producer  to  exchange  with  the  other.  And 
as  man  becomes  more  and  more  civilized  and 
far-seeing,  this  tendency  becomes  stronger 
and  stronger.  But  for  such  an  ideal  to  be 
realized,  even  in  small  part,  'it  is  necessary  to 
have  both  transportation  and  commercial  facili- 


EXCHANGE:   COMMERCE  151 

ties.  The  transportation  agent  may  carry  prod- 
ucts from  place  to  place,  thereby  creating  in 
them  place  utilities,  but  this  instrument  alone  is 
not  sufficient.  There  must  also  be  the  ex- 
change agent,  the  merchant  as  he  is  called  in 
popular  speech.  This  agent  must  act  as  an  in- 
termediary between  producer  and  consumer,  and 
must  keep  the  goods  in  storage  until  the  con- 
sumer's demands  for  them  are  strongest.  This 
agent  creates  utilities  in  the  products,  and  these 
utilities  we  call  time  utilities. 

Commerce  in  Relation  to  Producer  and  Con- 
sumer; brings  them  together  and  creates  Time 
Utilities.  —  Commerce  is,  therefore,  a  means  of 
bringing  the  producer  and  the  consumer  to- 
gether. But  transportation  is  another  means 
of  accomplishing  the  same  result.  In  fact, 
these  two  aspects,  while  separated  in  our  dis- 
cussion, and  to  an  extent  in  actual  business, 
are  very  closely  and  vitally  allied  with  each 
other.  Transportation  without  a  system  of  ex- 
change would  be  impossible,  and  exchange 
would  be  equally  impossible  without  facilities 
for  transportation.  It  is  the  modern  commer- 
cial agent  who,  by  means  of  the  transportation 
systems,  goes  to  the  ends  of  the  earth  in  search 
of  products  which  are  demanded  by  the  con- 
sumer ;  he  brings  producer  and  consumer  closer 
and  closer  together;  he  causes  the  economic 


PRINCIPLES  OF  WEALTH  AND  WELFARE 

world  to  be  combined  and  concentrated  into 
one  community,  so  to  speak;  he  plays  the 
guiding  and  leading  part  in  the  exchange  of 
goods,  whether  upon  small  and  local  markets, 
or  upon  national  or  international  markets ;  and 
he  delivers  goods  of  all  conceivable  kinds  and 
qualities  at  the  very  door  of  the  consumer 
and  receives  from  him  the  price.  This  agent 
is  not  only  an  intermediary  of  producer  and 
consumer,  but  he  is  also  himself  a  producer  of 
utilities  in  goods.  He  produces  in  every  prod- 
uct a  part  which  we  may  call  time  utilities. 

By  way  of  illustration,  let  us  assume  that  one 
pound  of  raw  cotton  is  grown  by  the  North 
Carolina  farmer  at  a  cost  of  seven  cents,  —  that 
is,  the  farmer,  by  means  of  his  labor,  land,  capital, 
and  management,  produces  in  this  cotton  fiber 
elementary  utilities  which  are  valued  at  seven 
cents.  The  transportation  and  exchange  agents 
add  utilities  to  this  pound  of  raw  material,  which 
are  valued,  let  us  say,  at  three  cents.  The  manu- 
facturer then  pays  for  the  raw  fiber,  when  deliv- 
ered to  him,  ten  cents.  By  changing  its  form, 
time  and  again,  he  creates  in  this  raw  material 
utilities  which  are  valued  at  twenty-five  cents, 
and  he  then  sells  to  the  merchant  for  thirty-five 
cents  the  total  utilities  which  the  cloth  contains. 
The  transportation  and  commercial  agents  create 
more  utilities  in  the  cloth,  giving  to  it  more 


EXCHANGE:   COMMERCE  153 

place  and  time  utilities,  which  are  valued  at 
fifteen  cents,  and  they  sell  its  total  utilities  to 
the  consumer  for  fifty  cents.  The  farmer,  the 
manufacturer,  the  transportation  and  the  com- 
mercial agents  —  all  these  factors  are  the  pro- 
ducers of  the  cotton  fabric  which  the  consumer 
buys. 

Commerce  and  its  Mechanism  ;  Systems  of 
Transportation,  Weights,  Measures,  and  Money. 
—  As  we  have  already  said,  the  producer  of 
commercial  utilities  is  an  agent  of  the  producers 
of  all  the  other  utilities,  as  well  as  of  the 
consumers  of  all  utilities.  This  agent,  by  means 
of  transportation  facilities,  causes  the  products 
which  the  consumer  wants  to  be  moved  from 
place  to  place,  as  well  as  keeps  them  in  his  own 
storehouses  until  the  consumer  needs  and  de- 
mands them  for  his  immediate  consumption. 
In  a  large  sense,  therefore,  the  transportation 
machinery  of  a  country  is  an  important  part 
of  its  commercial  mechanism.  There  is  great 
need,  however,  for  much  more  machinery  of 
exchange.  There  must  by  all  means  be  stand- 
ards of  weights  and  measures  —  common 
standards  of  measurement  for  all  the  products 
which  are  exchanged  between  the  producer  and 
the  consumer.  And  in  a  community,  which  is 
at  all  complex  and  extensive  in  its  economic 
wants,  activity,  and  effort,  its  manifold  products 


154    PRINCIPLES  OF  WEALTH  AND  WELFARE 

cannot  always  with  convenience  be  exchanged 
with  one  another.  There  must  also  be  a  com- 
mon standard  of  the  values  of  the  products 
which  are  exchanged ;  there  must  be  a  unified 
system  of  money.  In  this  extensive  exchange 
of  products  there  are  many  abuses  and  evils, 
and  for  the  correction  of  these  we  must  have  a 
vast  body  of  economic  legislation.  The  laws 
defining  and  regulating  the  weights,  measures, 
and  money  of  a  people  are  of  necessity  exceed- 
ingly numerous  and  important. 

Commerce,  Domestic  and  Foreign.  —  The  ex- 
change of  products  may  be  confined  to  a  single 
nation,  and  this  commerce  we  may  call  do- 
mestic. In  a  great  and  vast  country  like  our 
own  the  domestic  exchange  is  perfectly  enor- 
mous. Our  home  or  domestic  exchange  of 
products  amounts  to  the  gigantic  sum  of 
about  $2 5, 000,000,000 1  a  year.  Our  commerce 
with  the  peoples  of  other  nations,  while  very 
considerable,  is  as  yet  very  small  when  com- 
pared with  that  of  our  own  people ;  it  is  not 
more  than  one  ninth  as  great  in  volume.  In 
England,  on  the  other  hand,  the  foreign  com- 
merce is,  perhaps,  much  more  extensive  and 
important  than  is  the  domestic.  In  either 
country  commerce  is  a  wonderfully  great  pro- 
ducing factor,  and  the  rewards  of  its  productive 

1  These  figures  are  only  approximately  accurate. 


EXCHANGE:    COMMERCE  155 

powers  are  divided  between  the  producers  of 
the  utilities  and  consumers  of  them. 

In  an  economic  sense  there  is,  therefore,  little 
difference  between  internal  and  foreign  com- 
merce. In  a  political  sense  there  is,  however, 
a  distinction  to  be  made,  which  is  more  or  less 
important.  In  the  exchange  of  products  be- 
tween citizen  and  citizen  of  the  same  govern- 
ment the  ideal  is  that  of  the  most  perfect 
freedom.  In  the  commerce  between  citizens 
of  one  nation  and  those  of  another,  while  free- 
dom of  exchange  has  in  its  favor  the  presump- 
tion of  advantage,  there  are  many  interests, 
largely  of  a  political  nature,  which  must  be 
taken  into  serious  consideration  before  it  can 
become  the  rule  of  practice.  In  the  past  there 
has  been  much  hindrance  to  international  or 
foreign  exchange.  While  great  freedom  has 
prevailed  in  domestic  trade,  tariffs  upon  tariffs 
have  hindered  foreign  exchange.  An  analysis 
of  these  hindrances  is,  therefore,  of  the  most 
vital  importance,  but  it  cannot  just  here  be 
made;  later  the  reasons  for  tariffs  will  be  ex- 
amined.1 

Exchange  in  Appearance  for  Money ;  in  Reality 
for  Products.  —  This  exchange  of  goods,  whether 
domestic  or  foreign,  seems  to  be  for  money,  but 

1  See  the  chapter  which  is  devoted  to  the  state  as  a  producer 
of  wealth. 


156    PRINCIPLES  OF  WEALTH  AND  WELFARE 

in  reality  it  is  an  exchange  of  products  for 
other  products.  In  1901  the  United  States, 
for  instance,  apparently  exported  goods  in  ex- 
cess of  her  imports  to  the  enormous  value  of 
$665,000,000.  On  the  face  of  it,  this  great  sum 
would  seem  to  indicate  that  other  nations  paid 
to  us  in  one  year  more  than  half  a  billion  dol- 
lars of  gold.  The  fact  is,  however,  that  we 
received  from  abroad  that  year  only  a  very 
small  amount  of  gold  or  other  money.  Of  this 
enormous  amount,  there  remained  in  Europe 
about  $  1 00,000,000 1  to  pay  dividends  to  Eu- 
ropean holders  of  American  stocks  and  bonds, 
and  to  pay  interest  on  capital  borrowed  by  us 
from  abroad  ;  about  $50,000,000  to  pay  freight 
charges  to  Europeans,  largely  Englishmen,  for 
conveying  goods  to  and  from  our  ports ;  about 
$75,000,000  to  pay  American  tourists'  expenses 
in  Europe;  almost  $100,000,000  for  American 
investments  in  European  bonds ;  $7 5, 000,000  for 
overstanding  debts ;  a  considerable  amount  to 
balance  the  sums  sent  home  by  European  la- 
borers working  in  the  United  States ;  and  about 
$225,000,000  remained  in  Europe  in  exchange 
for  American  bonds  and  stocks  formerly  held 
by  Europeans  and  now  returned  to  us  to  be 
sold  at  higher  prices.  When  all  these  large 
amounts,  and  other  smaller  ones  which  we  have 

1  These  figures  are  largely  estimates. 


EXCHANGE:    COMMERCE  157 

not  mentioned,  were  taken  from  the  total  ap- 
parent excess,  there  was  only  a  small  balance  in 
our  favor  to  be  paid  in  gold. 

England,  on  the  other  hand,  had  during  1900 
an  excess  of  her  imports  of  goods  over  her  ex- 
ports to  the  enormous  amount  of  $1,130,000,000. 
This  apparent  gigantic  balance  against  her  was 
not,  however,  paid  in  gold.  She  paid  this  vast 
sum  by  the  earnings  of  her  ships  employed  in 
the  international  trade  of  the  world,  by  the 
earnings  of  her  money  loaned  and  her  insurance 
sold  abroad,  by  the  earnings  of  London  Ex- 
change which  still  has  great  productive  power, 
and  finally  by  the  profits  accruing  from  her 
manufactured  products  sold  to  the  consumers  of 
the  four  corners  of  the  globe. 

Commerce,  How  Productive:  (a)  Conditions  in 
the  Other  Groups  of  Production.  —  That  the  pro- 
ductive power  of  a  commercial  system  is  largely 
dependent  upon  the  conditions  of  prosperity  in 
all  the  other  aspects  of  economic  life,  we  have 
assumed.  And  that  this  assumption  is  a  cor- 
rect one  follows  from  the  very  nature  and  func- 
tion of  commerce.  The  amount  of  exchange 
depends  upon  the  amounts  of  goods  produced 
and  demanded.  A  great  failure  among  the 
producers  of  the  elementary  or  higher  form 
utilities,  as  well  as  a  great  falling  off  in  the 
demand  for  these  utilities,  has  a  profound 


158    PRINCIPLES  OF  WEALTH  AND  WELFARE 

influence  upon  the  commercial  man.  A  failure 
of  the  cotton  crop  of  the  Southern  states 
seriously  affects,  not  only  the  Southern  cotton 
farmer,  but  also  the  merchant  and  his  ally,  the 
transportation  agent,  throughout  our  own  vast 
country,  yes,  even  throughout  the  cotton-con- 
suming world.  Commerce,  as  well  as  trans- 
portation, is,  therefore,  profoundly  influenced 
by  economic  conditions;  and  these  conditions 
are  in  turn  fundamentally  and  vitally  influenced 
by  the  productive  power  of  commerce  and  all 
of  its  mechanism. 

Commerce,  How  Productive  :  (b)  Ability  of  the 
Commercial  Agent  and  Form  of  his  Management. — 
The  success  of  commerce  also  depends  greatly 
upon  the  individual  capacity  of  its  agent  and  the 
form  of  its  management.  The  task  of  produc- 
ing the  maximum  of  place  or  time  utilities,  and 
of  supplying  most  thoroughly  and  economically 
the  transportation  and  exchange  wants  of  man, 
is  one  of  the  greatest  and  most  complicated  in 
the  whole  economic  realm.  The  individual 
who  has  the  energy,  judgment,  foresight,  and 
imagination  to  perform  this  task  is  upon  the 
simple  ground  of  merit  to  be  ranked  with  the 
world's  greatest  personalities.  And  in  the  per- 
formance of  this  task  many  different  forms  of 
business  management  have  been  used.  In  the 
exchange  of  goods  we  have  as  yet  comparatively 


EXCHANGE  :  COMMERCE  1 59 

little  of  the  principle  of  monopoly,  and  the 
scale  of  management  is  for  the  most  part  much 
smaller  than  is  that  of  the  manufacturer  or  the 
transportation  agent.  Many  competitive  or- 
ganizations, of  both  small  and  large  proportions, 
carry  on  our  commerce. 

Commerce,  How  Productive  :  (c)  Mechanism  of 
Commerce.  —  We  have  already  considered  the 
great  advantages  which  an  efficient  transporta- 
tion system  can  bring  to  the  commercial  agent. 
We  have  likewise  seen  that  for  the  exchange  of 
products  there  is  a  great  demand  for  a  uniform 
system  of  weights  and  measures.  This  demand 
for  uniform  weights  and  measures,  according  to 
which  all  the  goods  of  the  people  of  a  nation 
are  measured,  has  been  readily  and  efficiently 
supplied  by  the  government.  And  over  these 
wants  there  has  been  little  popular  agitation 
and  discussion.  But  over  the  mechanism  called 
money  and  banking  there  has  been  a  long  series 
of  agitations  and  battles,  and  these  problems 
are  not  yet  by  any  means  solved.  A  discussion 
of  this  mechanism  and  its  problems  will  be 
made  in  the  two  following  chapters. 

QUESTIONS 

(1)  Are  you  as  a  consumer  of  flour  influenced  and  bene- 
fited by  the  merchant? 

(2)  Is  the  producer  of  wool  influenced  and  benefited  by 
the  merchant? 


160    PRINCIPLES  OF  WEALTH  AND  WELFARE 

(3)  Do  merchants   exchange   goods  for  money  or  for 
other  goods? 

(4)  What  does  a  uniform  system  of  weights  and  measures 
have  to  do  with  trade  or  commerce  ? 

(5)  What  benefit  is  there  to  commerce  in  a  sound  and 
efficient  system  of  money  ? 


CHAPTER  X 

EXCHANGE :    MONEY  A  STANDARD  OF  VALUE 

A  PRODUCER  OF  WEALTH 

Importance   of  Money;  its  Chief  Features. — 

We  have  already  seen  that  there  is,  in  the 
exchange  of  products,  great  need  of  a  com- 
mon standard  of  value.  Commerce,  as  well 
as  all  the  other  aspects  of  production,  has 
a  key,  and  this  key  is  value.  Value  as  an 
abstract  idea  is,  however,  of  very  little  impor- 
tance in  the  business  world  ;  it  must  be  em- 
bodied in  some  concrete  form,  in  some  standard 
of  measurement  common  to  all,  before  it 
can  unlock  all  the  countless  economic  situa- 
tions. It  is  the  money  of  a  nation  that  is  this 
common  standard  of  value,  as  well  as  the  com- 
mon medium  of  exchange.  It  is  these  two 
features  of  money — a  standard  of  value  and  a 
medium  of  exchange  —  that  give  it  a  position 
of  such  fundamental  and  vital  importance  in  all 
the  aspects  of  economic  life. 

A  Standard  of  Value  also  a  Medium  of  Ex- 
change.—  As  a  standard  of  value,  money  is 
almost  as  important  as  the  language  of  a  people. 


162    PRINCIPLES  OF  WEALTH  AND  WELFARE 

As  language  is  the  means  of  the  expression  of 
all  its  feelings  and  thoughts,  so  money  is  the 
common  measure  of  all  its  economic  forces; 
it  measures  as  a  yardstick  all  its  economic 
motives.  As  a  standard  of  value,  money  is 
likewise  a  producer  of  utilities.  It  greatly 
facilitates  every  aspect  of  production,  —  that 
of  the  farmer,  miner,  manufacturer,  transporta- 
tion agent,  and  especially  that  of  the  merchant. 
The  feature  of  money  as  a  standard  of  value 
can  never  be  entirely  separated,  either  in 
thought  or  in  actual  use,  from  that  of  money 
as  a  medium  of  exchange.  That  which  is 
established  by  a  people  as  its  common  standard 
of  value  serves  also  as  one  of  the  media  of  its 
exchanges.  And  money  as  a  medium  of  ex- 
change is  almost  as  vitally  important  as  money 
as  a  standard  of  value.  It  is  the  medium  of 
the  transmission  of  all  the  economic  forces, 
very  much  as  blood  in  the  animal  body  is  the 
medium  of  the  transmission  of  vital  or  life- 
giving  forces. 

The  Properties  of  a  Standard  of  Value.  —  From 
the  very  nature  and  purpose  of  a  standard  of 
value,  it  follows  that  the  commodity  which  is 
adopted  as  such  a  standard  should  possess 
(i)  a  great  degree  of  universality;  it  should  be 
widely  used  as  an  ordinary  commodity  of  con- 
sumption. It  should  also  possess  (2)  a  high 


EXCHANGE:  MONEY  A  STANDARD  OF  VALUE      163 

degree  of  exchangeability,  for,  as  we  have  said, 
the  standard  of  value  must  also  possess  use  as 
a  medium  of  exchanges,  use  as  currency  to 
speak  in  commercial  terms.  The  standard  of 
value  should  likewise  possess  (3)  the  property  of 
being  easily  transported  from  place  to  place. 
And  there  is  need  of  still  another  property, 
that  is  perhaps  more  vitally  important  than 
that  of  any  of  these  which  we  have  just  men- 
tioned ;  the  standard  should  be  (4)  as  stable  in 
its  value  as  possible. 

There  can,  however,  be  no  absolutely  perfect 
standard  of  value.  No  commodity  whatsoever 
possesses  all  the  properties  required  for  such  a 
standard,  at  least  for  a  people  whose  economic 
life  is  ever  changing,  as  that  of  most  modern 
peoples  is.  Every  goods  or  commodity  which 
can  be  selected  as  a  standard  of  value,  whatever 
it  may  be,  is  variable  in  its  value.  Its  variable- 
ness depends  upon  causes  which  affect  itself, 
such  as  its  supply  and  the  demand  for  it,  and 
these  forces  never  remain  the  same  for  any 
length  of  time.  Its  variations  in  value  likewise 
depend  upon  causes  which  affect  the  value  of 
the  other  commodities  with  which  the  standard 
is  compared,  such  as  the  supply  of  these  com- 
modities and  the  demand  for  them. 

Gold  as  a  Standard  of  Value. — What,  then,  shall 
be  taken  as  such  a  standard?  What,  then,  shall 


164    PRINCIPLES  OF  WEALTH  AND  WELFARE 

be  taken  as  the  standard  of  value  and  also  as 
one  of  the  media  of  exchanges?  In  the  history 
of  man,  that  commodity  has  been  selected  as 
the  standard  of  value  which  at  the  time  possesses 
more  nearly  all  of  the  properties  that  we  have 
considered  above  than  does  any  other  commod- 
ity. Wampum,  labor,  tobacco,  silver,  gold, — 
each  of  these  commodities  has  at  one  time  or 
another  been  adopted  by  the  American  people 
as  their  standard.  The  European  nations  also 
have  adopted  as  standards  of  value  a  variety  of 
commodities.  But  to-day  almost  all  of  the  great 
peoples  of  the  world  have  declared  gold  to  be 
their  standard;  and  of  all  the  commodities,  which 
have  so  far  been  used  as  standards  of  value,  gold 
is  perhaps  the  most  suitable,  since  it  possesses 
more  nearly  all  of  the  required  properties.  Its 
use  for  ordinary  purposes  in  jewelry,  plate,  and 
instruments  is  quite  universal.  It  is  easily  and 
cheaply  transported  from  place  to  place.  It  is 
readily  accepted  in  exchange,  and  with  all  these 
properties  it  at  present  possesses  more  stability 
of  value  than  does  any  other  known  commodity. 
The  Gold  Dollar  the  American  Standard. — 
While  practically  all  of  the  larger  nations  have 
within  recent  years  adopted  gold  as  their  stand- 
ard of  value,  and  in  this  respect  they  have  all 
worked  out  the  same  results,  still  each  nation 
has  its  own  peculiar  unit  of  value,  its  own 


EXCHANGE:  MONEY  A  STANDARD  OF  VALUE      165 

amount  of  gold  as  a  standard.  In  our  country 
Congress  years  ago  declared  23.22  grains  of 
pure  gold  to  be  our  standard,  and  gave  it  the 
name  of  dollar.  And  in  all  of  our  countless  eco- 
nomic transactions  this  unit,  a  gold  dollar,  is  the 
common  measure.  The  economic  motives  and 
acts  of  the  producers  of  our  whole  economic 
realm,  as  well  as  of  the  consumers,  are  gauged 
by  this  unit. 

The  Relation  of  the  Standard  of  Value  to  Prices ; 
All  Prices  in  Terms  of  the  Standard.  —  We  have 
assumed  that  the  relations  of  the  producer  and 
the  consumer  are  best  expressed  in  prices.  And 
this  assumption  will  be  analyzed  when  we  come 
to  consider  the  market  and  market  prices. 
A  price  is,  however,  something  more  than  an 
expression  of  the  forces  of  the  producer  and  the 
consumer  when  they  balance  each  other  on  a 
market.  It  is  also  an  expression  of  these  forces 
in  terms  of  the  common  standard  of  value, 
which  a  people  has  adopted  for  its  convenience 
and  use.  The  price  of  every  article  bought 
and  sold  within  the  entire  United  States  is  in 
terms  of  the  gold  dollar.  Let  us  illustrate  this 
point.  We  mean  by  ten-cent  cotton  that  ten 
pounds  of  it  are  equivalent  to  one  dollar  of  gold. 
Four-cent  flour  means  that  twenty-five  pounds 
of  it  are  equivalent  to  one  dollar  in  gold. 

That  the  quantity  of  gold,  as  of  any  other 


1 66    PRINCIPLES  OF  WEALTH  AND  WELFARE 

commodity  of  consumption,  varies  from  time 
to  time  is  well  known.  The  activity  and  effort 
required  for  its  extraction  from  the  earth,  the 
amount  of  capital,  machinery,  and  business  man- 
agement employed  in  its  mining  and  purifica- 
tion, are  factors  which  vary  both  in  quantity  and 
quality.  The  supply  of  gold  is,  therefore,  not 
an  absolute  quantity.  The  demand  for  it,  just 
as  the  supply  of  it,  also  varies  from  time  to 
time.  The  demand  for  any  commodity  what- 
ever is  not,  as  we  have  already  seen,  a  perma- 
nent and  unchanging  force ;  the  desires  and 
wants  of  man,  whether  created  by  natural  forces 
alone  or  by  natural  and  social  surroundings, 
vary  in  both  quantity  and  quality.  At  times 
the  wants  for  gold  in  the  forms  of  jewelry,  plate, 
instruments,  etc.,  are  great  and  very  intense, 
while  at  other  times  they  are  small  and  less  in- 
tense. These  variations  in  the  supply  of  and 
the  demand  for  gold,  and  they  are  of  many 
kinds  and  degrees,  cause  variations  in  the  mar- 
ket value  of  gold. 

And  these  variations  in  the  value  of  gold  — 
the  standard  of  value  in  all  the  American  ex- 
changes or  trades  —  cause  variations  in  the 
prices  not  only  of  the  standard  commodity 
itself,  gold,  but  also  of  all  the  other  commodi- 
ties. A  change  in  the  market  value  and  price 
of  American  gold  necessarily  causes  changes 


EXCHANGE:  MONEY  A  STANDARD  OF  VALUE   167 

in  the  market  value  and  price  of  cotton,  wheat, 
electricity,  and  all  the  other  American  products 
of  whatever  kind.  But  this  is  not  all.  All  the 
other  commodities  are  always  changing,  more 
or  less,  in  their  supply.  One  year  we  have  ten 
and  a  half  million  bales  of  cotton,  while  another 
year  the  cotton  crop  amounts  to  more  than 
thirteen  and  a  half  million  bales.  The  number 
of  yards  of  silk  manufactured  varies  from  month 
to  month  and  from  year  to  year.  Not  only, 
then,  does  the  supply  of  the  other  commodities 
vary,  but  the  demand  for  them  is  also  always 
changing.  These  changes  in  the  supply  of 
and  demand  for  the  other  commodities  cause 
changes  in  the  market  value  and  price  of  these 
commodities,  even  though  we  assume  that  gold, 
the  standard,  is  unchanging  in  its  market  price, 
and  this  assumption  is  not  correct.  The  mar- 
ket prices  of  all  the  other  commodities  besides 
gold  are,  therefore,  subject  to  two  sets  of  forces, 
are  liable  to  changes  from  two  sets  of  causes : 
those  which  affect  their  own  supply  and  de- 
mand ;  and  those  which  affect  the  supply  and 
demand  of  gold,  the  standard  commodity  in 
terms  of  which  all  the  other  commodities  are 
measured.  We,  therefore,  have  changes  in  the 
prices  of  the  other  commodities  because  of  vari- 
ations in  their  own  supply  and  demand,  and 
also  because  of  a  rise  or  fall  in  the  price  of  gold. 


168    PRINCIPLES  OF  WEALTH  AND  WELFARE 

Double  or  Single  Standard  of  Value.  —  It  fol- 
lows from  the  above  considerations  that,  with 
any  one  single  standard  of  value,  even  though  it 
be  the  most  perfect,  we  have  variations  in  the 
prices  of  all  goods.  Changes  in  the  prices  of 
goods,  and  as  a  rule  they  are  many  and  frequent, 
are  not  to  be  desired  by  producer  or  consumer. 
A  fairly  stable  market  is  a  blessing  to  all,  pro- 
vided the  stability  does  not  come  as  a  result  of 
stagnation  in  the  business  world.  With  a  sin- 
gle gold  standard,  and  gold  is  thought  to  pos- 
sess the  greatest  stability  of  value  of  any  known 
and  widely  used  commodity,  we  have  sufficient 
variations  in  prices.  What  would  be  the  result  of 
having  two  standards,  as,  for  instance,  gold  and 
silver  ?  From  the  analysis  of  prices,  which  we 
have  already  given  in  outline  and  which  we 
shall  later  treat  in  much  greater  detail,  we  have 
seen  that  prices  vary  in  consequence  of  the  in- 
crease or  decrease  in  the  supply  of  and  demand 
for  goods,  and  also  in  consequence  of  the  in- 
crease or  decrease  in  the  supply  of  and  demand 
for  gold.  If  we  have  two  standards  of  value  in- 
stead of  one,  the  variations  in  prices  will,  we  be- 
lieve, become  greater  and  greater.  The  silver 
standard,  as  well  as  the  gold,  will  vary  in  its 
prices,  increasing  or  decreasing,  as  its  supply 
and  demand  change.  With  two  standards  of 
values  or  prices,  and  each  one  with  its  own 


EXCHANGE:  MONEY  A  STANDARD  OF  VALUE      169 

independent  variations,  there  must  be  more 
changes  in  prices  than  there  would  be  with 
only  one  standard  of  values. 

Single  Standard  the  Ideal;  Less  Fluctuations 
in  Prices. —  It  is,  however,  contended  that  the 
variations  in  the  values  or  prices  of  the  two 
standards  will  of  themselves  mutually  regulate 
each  other,  and  that  in  consequence  two  stand- 
ards will  mean  a  more  stable  market,  less  and 
less  fluctuations  in  prices,  than  could  be  the 
case  with  only  a  single  standard.  Such  a  con- 
tention is  not  sustained,  it  seems  to  us,  by  the 
facts  of  the  past.  Bimetallism,  as  the  double 
standard  has  been  called,  has  had  a  long  trial. 
Many  of  the  European  countries  had  such  a 
standard  for  centuries,  and  our  own  people 
gave  it  a  trial  for  almost  a  hundred  years.  The 
world's  experience  has  been  to  the  effect  that  it 
is  practically  impossible  to  maintain  the  legal 
ratio  of  the  standards  —  the  ratio  of  exchange 
between  the  standards  fixed  by  the  government. 
The  government  must  not  only  establish  the 
unit  and  its  value  in  each  metal,  but  also  estab- 
lish the  ratio  at  which  the  units  of  one  metal 
must  be  accepted  in  exchange  with  the  units  of 
the  other  metal.  The  famous  saying  "  Sixteen 
to  one "  means  that  the  government  should 
adopt  a  gold  standard  of  value,  a  gold  dollar 
composed  of  23.22  grains  of  pure  gold,  and  a 


I/O    PRINCIPLES  OF  WEALTH  AND  WELFARE 

silver  standard  of  value,  a  silver  dollar  com- 
posed of  371.52  grains  of  pure  silver,  and  that 
one  dollar  of  gold  must  always  be  accepted  for 
one  dollar  of  silver  and  vice  versa.  The  mar- 
ket ratio  between  these  two  metals  as  commodi- 
ties may  be  at  the  time  of  the  passage  of  such 
a  law  sixteen  to  one.  But  the  world's  experience 
has  shown  that  the  market  ratio,  and  this  is  the 
one  regulated  by  the  economic  forces  of  the 
producer  and  the  consumer,  rarely  ever  re- 
mains for  any  length  of  time  the  same  as  that 
fixed  by  law.  The  business  world  will  not  long 
exchange  silver  and  gold  at  exactly  sixteen  to 
one,  though  the  government  attempt  to  compel 
it  to  do  so  by  the  legal  tender  provision.1  The 
actual  ratio  of  exchange  is  at  one  time  sixteen 
to  one,  at  another  time  fifteen  and  a  half  to  one, 
and  at  still  another  time  sixteen  and  a  half  to 
one. 

Gresham's  Law:  the  Dearer  Standard  Disap- 
pears. —  The  world's  experience  is,  that  it  is  not 
only  practically  impossible  to  maintain  the  legal 
ratio  between  the  two  standards,  —  and  numer- 
ous have  been  the  attempts  to  do  this,  —  but 
that  it  is  also  practically  impossible  to  keep 
two  standards  in  actual  operation.  In  conse- 

1  The  legal  tender  provision  requires  a  creditor  to  accept  from 
a  debtor  gold  or  silver  at  the  ratio  fixed  by  law,  not  at  their  mar- 
ket value  or  ratio. 


EXCHANGE:  MONEY  A  STANDARD  OF  VALUE      171 

quence  of  the  changes  in  the  value  of  the  stand- 
ards, and  over  these  changes  the  government 
has  exceedingly  little  influence,  one  standard 
becomes  dearer  and  the  other  cheaper.  And  the 
cheaper  standard  has  always  driven  the  dearer 
one  more  or  less  out  of  existence ;  and  the  re- 
sult has  been  that,  while  in  theory  there  are 
two  standards  of  value,  in  actual  practice  there 
is  but  one  standard.  Men  will  hoard  the  dearer 
money  or  transfer  it  from  currency  to  use  in 
jewelry,  plate,  and  instruments,  regardless  of  the 
artificial  legal  tender  provision.  All  men  will 
pay  for  their  goods  the  lowest  possible  price; 
will  pay  in  the  cheapest  standard  of  value. 

The  two  standards  of  value  have,  therefore, 
failed  to  regulate  the  values  or  prices  of  each 
other,  have  failed  to  bring  greater  stability  to 
the  prices  of  the  other  commodities  which  are 
measured  in  terms  of  the  standards,  and  finally 
have  failed  to  maintain  themselves  as  standards 
of  value  and  media  of  exchanges.  The  experi- 
ence of  the  world  then  agrees  in  the  main  with 
the  theory  of  a  double  standard,  of  which  we 
have  already  spoken.  Fact  and  theory,  there- 
fore, both  agree  that  money  is  most  productive, 
is  most  serviceable  to  the  producer  of  goods 
and  their  consumer —  to  the  farmer,  the  miner, 
the  manufacturer,  the  transportation  agent,  and 
the  merchant  —  that  money  is  a  greater  instru- 


1/2    PRINCIPLES  OF  WEALTH  AND  WELFARE 

ment  of  producing  wealth  when  the  standard 
of  it  and  of  all  the  other  commodities  is  single, 
not  double.  Whether  this  standard  should  be 
gold  or  silver  is  perhaps  a  debatable  question. 
A  single  standard  of  value,  gold,  for  instance, 
does  not,  however,  mean  a  single  form  of  money 
as  a  medium  of  exchange.  The  needs  of  the 
business  world  seem  to  us  to  call  for  a  single 
standard  of  value,  perhaps  the  gold  standard. 
But  these  same  needs  seem  to  us  to  call  for 
silver,  nickel,  and  copper,  as  well  as  gold,  as 
media  of  the  exchange  of  goods. 

QUESTIONS 

(1)  A  New  York  merchant  makes  in  a  day  one  thousand 
trades  with  his  customers.     What  serves  as  the  standard  of 
value  in  all  of  these  trades? 

(2)  What  is  the  relation  of  the  gold  dollar  to  all  prices 
in  the  United  States? 

(3)  Would  you  have  a  single  gold  standard  ? 

(4)  Would  you  have  a  single  silver  standard  ? 

(5)  Would    you    have   a   double   standard  —  gold  and 
silver  ? 

(6)  Does  a  stable  standard  of  value  add  to  your  wealth 
and  welfare? 


CHAPTER   XI 

EXCHANGE:  MONEY  A  MEDIUM  OF  EXCHANGE — A 
PRODUCER  OF  WEALTH 

Importance  of  Media  of  Exchange.  —  We  have 
spoken  of  money  as  a  standard  of  the  values  of 
all  kinds,  qualities,  and  quantities  of  commodi- 
ties. We  have  seen  that  such  a  standard  is  a 
great  instrument  in  the  production  of  wealth. 
The  economic  realm  of  producers  and  con- 
sumers demands  money  not  only  as  a  standard 
of  value,  but  also  as  a  medium  of  the  ex- 
change of  all  its  products.  Many  of  these 
exchanges,  at  least  as  we  have  them  to-day, 
cannot  with  ease  and  convenience  be  made  in 
ordinary  commodities  alone.  To  be  sure,  ordi- 
nary goods  are  at  times  exchanged  for  ordinary 
goods,  but  this  is  not  the  rule  of  our  present 
economic  life.  The  ordinary  commodities  are 
now  exchanged  for  money,  in  some  form  or 
other,  and  this  money  is  in  turn  exchanged  for 
ordinary  commodities  of  various  kinds.  Money 
is  the  medium  of  these  exchanges,  and  this 
medium  is  the  instrument  or  means  through 
which  much  economic  force  is  transmitted. 


1/4    PRINCIPLES  OF  WEALTH  AND  WELFARE 

It  is,  in  fact,  a  great  instrument  in  the  produc- 
tion of  wealth.  Money  as  a  medium  of  ex- 
change, as  well  as  a  standard  of  value,  may, 
therefore,  with  good  reason  be  called  a  producer 
of  wealth. 

Properties  of  Money  as  a  Medium  of  Exchange. 
—  Among  the  properties  required  of  that  com- 
modity which  is  adopted  by  a  people  as  its 
standard  of  value,  a  high  degree  of  exchange- 
ability  is,  as  we  have  seen,  one  of  the  most  im- 
portant. This  is  an  equally  important  property 
of  money  as  a  medium  of  exchange.  The 
money  medium  must  be  acceptable  to  all  per- 
sons in  the  exchange  of  their  goods  or  services  ; 
otherwise  the  chief  function  of  the  medium  is 
not  performed.  A  medium  of  exchange  is 
adopted  for  the  very  purpose  of  facilitating  the 
exchange  of  goods  and  services  of  mani- 
fold kinds,  not  only  within  a  small  area  but 
also  throughout  the  economic  realm  of  a 
people. 

Not  only  must  the  medium  possess  the  prop- 
erty of  (i)  exchangeability,  but  it  must  also 
possess  that  of  (2)  accuracy.  The  medium  for 
which  goods  are  exchanged  should,  as  a  matter 
of  course,  be  as  nearly  an  equivalent  of  these 
goods  as  is  possible.  A  man  will  refuse  to 
exchange  his  commodities  for  a  medium  unless 
he  feels  that  he  is  receiving  in  return  an  equiv- 


EXCHANGE:  MONEY  A  MEDIUM  OF  EXCHANGE  175 

alent  value.  (3)  The  property  of  being  easily 
transported  from  place  to  place,  in  small  or  large 
amounts,  is  also  very  necessary.  The  ex- 
changes of  the  American  people  among  them- 
selves cover  a  distance  of  more  than  three 
thousand  miles,  and,  if  the  medium  of  these 
exchanges  cannot  with  ease  be  taken  from  place 
to  place  throughout  this  vast  area,  commerce 
is  hindered.  The  medium  should  likewise 
possess  (4)  the  property  of  durability,  of  being 
able  to  stand  the  wear  and  tear  of  commerce, 
and  a  (5)  form  and  such  (6)  marks  that  all  men 
may  easily  recognize  its  value.  That  it  should 
possess  these  properties  needs  no  special  discus- 
sion. But,  of  all  the  many  necessary  properties 
of  money  as  a  medium  of  exchange,  none  are 
more  important  than  those  of  (7)  its  size  and  its 
elasticity.  The  commercial  transactions  of  a 
people  cover  a  very  wide  range  of  values.  The 
American  deals  in  some  goods  valued  at  most 
at  one  cent,  in  other  goods  valued  at  hundreds 
of  cents,  and  in  still  others  valued  at  hundreds 
of  dollars.  For  all  these  various  transactions, 
there  is  an  absolute  need  of  a  medium  of  cor- 
responding size,  ranging  from  one  cent  to 
thousands  of  dollars.  In  Europe,  where  com- 
mercial dealings  are  of  much  smaller  value  than 
are  our  own,  there  is  great  need  of  a  medium  of 
smaller  size  than  our  one-cent  piece.  It  must 


176    PRINCIPLES  OF  WEALTH  AND  WELFARE 

for  them  range  as  low  as  one  fifth  of  a  cent. 
In  all  countries  the  volume  of  exchange  is  fluc- 
tuating. At  one  time  it  is  larger,  at  another 
time  smaller.  And  the  volume  of  money  should 
always  correspond  with  the  changes  in  the  de- 
mand for  it. 

Composition  of  the  Medium  of  Exchange.  —  It 
follows,  from  the  very  purposes  and  properties 
of  a  medium  of  exchange,  that  it  should  be  of 
different  composition.  In  this  respect,  there  is 
a  fundamental  difference  between  money  as 
a  standard  of  value  and  money  as  a  medium 
of  exchange.  The  one  should  be  composed 
of  only  one  commodity,  while  the  other  should 
be  of  several  commodities.  And  the  media  of 
exchange  or  currency,  as  these  media  are  called 
in  popular  speech,  may  be  grouped  under  two 
heads:  coin,  or  metallic  money,  and  paper 
money.  For  metallic  money  the  people  of  the 
United  States,  and  of  almost  all  the  other  coun- 
tries, now  use  gold,  silver,  nickel,  and  copper, 
combined  with  certain  alloys.  As  we  have 
already  seen,  gold  is  our  present  standard  of 
value,  and  in  terms  of  this  standard  all  of  our 
other  media  of  exchange  are  measured,  whether 
they  are  metallic  or  paper. 

(a)  Coin :  Gold,  Silver,  Nickel,  and  Copper.  — 
Of  gold  coin,  we  have  the  twenty,  ten,  five, 
and  two-and-a-half  dollar  pieces.  While  our 


EXCHANGE:  MONEY  A  MEDIUM  OF  EXCHANGE    177 

standard  of  value  is  the  gold  dollar,  gold  coin 
of  this  size  is  not  at  present  minted.  It  is  too 
small  for  convenience.  Not  only  has  it  been 
found  that  the  one-dollar  gold  piece  is  too  small 
for  practical  use,  but  it  has  also  been  discovered 
that  a  gold  coin  of  any  size  made  of  pure  gold 
is  impractical ;  it  is  not  sufficiently  hard  to 
endure  the  wear  and  tear  of  commercial  use. 
Gold  coins  of  any  denomination  are  now  only 
nine  tenths  pure  gold.  Of  the  total  weight 
of  the  double  eagle,  eagle,  half  eagle,  or  quarter 
eagle,  one  tenth  is  copper.  The  total  weight 
of  the  eagle  or  ten-dollar  gold  piece,  for  in- 
stance, is  258  grains,  but  of  this  total  weight 
only  232.2  grains  are  of  pure  gold. 

We  have  silver  coins  known  as  the  one-dollar, 
fifty-cent,  twenty-five-cent,  and  ten-cent  pieces. 
Each  of  these  silver  coins  is  composed  of  nine 
tenths  pure  silver  and  one  tenth  copper.  And 
these  silver  pieces  are  now  all  subsidiary  to  the 
gold  standard,  and  the  legal  value  of  these 
coins  is  fixed  above  that  of  their  market. 
This  provision  was  made  in  order  to  prevent 
the  condition  of  having  at  times  two  actual 
standards  of  value,  —  gold  and  silver.  Con- 
gress, after  the  people  of  the  United  States 
had  long  struggled  under  the  fluctuations  of  two 
legal  standards  of  value,  established  by  law 
a  single  gold  standard.  But  some  further 


178    PRINCIPLES  OF  WEALTH  AND  WELFARE 

legislation  must  be  enacted,  to  make  this  single 
standard  a  permanent  one.  If  the  legal  value 
of  silver  coin,  or  its  legal  ratio  of  exchange 
with  gold  coin,  were  fixed  at  that  of  its  market, 
silver  would  in  actual  practice  compete  with 
gold  as  a  standard  of  value,  notwithstanding 
the  fact  that  Congress  has  declared  gold  to 
be  our  only  standard.  And,  moreover,  if  the 
silver  coin,  having  been  given  such  a  legal  value, 
should  increase  in  its  market  value,  as  is  often 
the  case,  it  would  become  dearer  than  the  gold 
coin.  In  consequence  of  such  a  condition 
silver  would  more  or  less  disappear  from  use  as 
currency,  and  this  would  hinder  commerce ;  for 
silver  coins,  certainly  those  of  the  sizes  below 
one  dollar,  are  very  necessary  in  business  deal- 
ings. But  the  provision  to  the  effect  that  the 
legal  value  of  the  silver  coins  shall  be  greater 
than  their  market  value  prevents  the  occurrence 
of  such  an  undesirable  condition. 

In  consequence  of  this  provision,  we  have  an 
abundance  of  silver  coins  for  all  of  our  com- 
mercial purposes ;  and  we  would  most  probably 
add  to  the  efficiency  of  our  money  by  convert- 
ing our  silver  dollar  pieces  into  the  smaller 
sizes.  In  addition  to  the  small  silver  coins,  we 
have  in  fairly  large  quantities  five-cent  pieces 
of  nickel  and  copper,  and  one-cent  pieces  of 
copper,  tin,  and  zinc.  While  we  have  a  very 


EXCHANGE:  MONEY  A  MEDIUM  OF  EXCHANGE  179 

large  supply  of  coins  ranging  from  fifty  cents 
to  one  cent,  our  needs  for  such  denominations 
are  enormously  great.  Millions  are  the  daily 
transactions  in  which  only  small  values  are 
involved,  and  we  have  no  small  currency  of 
convenience1  other  than  our  small  silver,  nickel, 
and  copper  pieces. 

(6)  Paper  Money.  —  As  we  have  said,  that 
commodity  which  any  people  adopts  as  its 
standard  of  value  should  in  itself  possess  util- 
ity ;  the  nature  and  function  of  a  standard  re- 
quire this  much.  That  all  forms  of  money  as 
media  of  exchange  should  in  themselves  possess 
value  is,  however,  by  no  means  necessary.  They 
must,  to  be  sure,  represent  things  which  of 
themselves  possess  value.  Metallic  money  pos- 
sesses utility  in  itself,  as  well  as  the  property 
of  serving  as  a  medium  of  exchange,  though 
this  form  of  money  at  times  possesses  a  legal 
value  which  is  much  higher  than  that  of  the 
market.  Paper  money,  on  the  other  hand,  has 
absolutely  no  intrinsic  value.  It  merely  repre- 
sents the  obligation  of  a  public  or  private  body, 
and  the  reason  for  its  acceptance  by  the  busi- 
ness or  commercial  world  is  based  entirely  upon 
the  confidence  which  the  business  world  places 
in  these  bodies. 

1  The  bank  check  may  at  times  be  used  as  small  currency,  but 
checks  for  very  small  amounts  are  inconvenient. 


ISO    PRINCIPLES  OF  WEALTH  AND  WELFARE 

And  this  form  of  currency  performs  one  dis- 
tinct service  which  coin  cannot  render.  It  is 
more  easily  transported  from  place  to  place  and 
from  person  to  person  than  is  metallic  money. 
It,  therefore,  requires  less  and  less  police  force 
to  protect  its  transportation.  When  based  upon 
gold  as  a  standard  of  value,  and  when  secured 
by  wealth  in  some  readily  tangible  form,  paper 
media  of  exchange  are,  in  addition  to  being 
cheap  in  the  cost  of  issue,  very  convenient  and 
safe.  Unfortunately,  however,  much  of  the 
paper  money  is  not  based  upon  gold  or  upon 
some  other  form  of  wealth  which  is  substantially 
as  valuable  as  gold;  in  fact  much  of  it  is  at 
times  inconvertible.  If  all  paper  currency  were 
readily  convertible  into  the  standard  of  value 
or  its  equivalent,  its  use  would  not  only  be  safe 
but  also  most  convenient  and  advantageous. 

Convertible  Paper  Money  or  Media  of  Exchange. 
—  The  paper  medium  called  convertible  is  pay- 
able on  demand,  and  in  the  standard  of  value 
itself,  whenever  the  holder  of  it  calls  for  such  a 
form  of  payment.  It,  therefore,  passes  at  par 
value  ;  it  is  usually  accepted  by  all  without  any 
objection  whatever.  The  state  also  assigns  to 
certain  forms  of  it  legal  tender  powers,  and 
thereby  to  an  extent  compels  its  circulation. 

Of  this  kind  of  paper  currency,  (i)  the  silver 
certificate  is  an  important  element.  These  cer- 


EXCHANGE:  MONEY  A  MEDIUM  OF  EXCHANGE  l8l 

tificates  are  issued  by  the  treasury  department  in 
Washington,  and  are  completely  secured  by  silver 
dollars,  which  are  held  in  reserve  for  the  specific 
purpose  of  redeeming  them.  They  are  conse- 
quently safe  and  sound,  are  in  extensive  and 
common  use,  and  serve  the  business  world 
much  more  efficiently  than  do  the  silver  dol- 
lars.1 The  denominations  of  this  medium  range 
from  $i  to  $1000.  The  federal  treasury  depart- 
ment has  also  issued  (2)  gold  certificates.  And 
these  certificates  are  completely  secured  by  gold 
coin,  which  is  held  in  the  vaults  of  the  depart- 
ment for  the  specific  purpose  of  redeeming 
them.  Like  the  silver  certificates,  they  are 
safe  and  serviceable  to  the  commercial  world, 
though  they  are  in  large  denominations.  They 
range  from  $20  to  $10,000.  Another  form  of 
convertible  paper  money  is  (3)  the  United  States 
treasury  note.  These  notes  are  issued  by  the 
federal  treasury  department,  usually  for  a  short 
period.  Their  redemption  is  guaranteed  by  this 
department,  and  for  the  most  part  they  are  to  be 
redeemed  within  a  short  time,  though  no  spe- 
cific form  or  amount  of  coin  is  kept  in  reserve 
for  their  redemption.  In  this  respect  they  are 
unlike  the  silver  and  gold  certificates,  though, 
like  these  media,  they  usually  pass  at  par.  Their 
circulation  and  acceptance  depend,  however, 

1  Silver  dollar  pieces  are  too  heavy  for  convenience. 


1 82    PRINCIPLES  OF  WEALTH  AND  WELFARE 

upon  the  confidence  which  is  placed  in  the 
government's  general  financial  ability,  while 
the  acceptance  of  the  silver  and  gold  certificates 
depends  upon  something  much  more  tangible 
—  upon  silver  and  gold  coins  which  are  held 
in  reserve  for  this  very  purpose.  These  treas- 
ury notes  are  issued  for  the  purpose  of  tempo- 
rarily expanding  the  currency,  while  silver  and 
gold  certificates  never  expand  the  media  of 
exchange ;  they  are  issued  only  in  the  place  of 
coin  money. 

Our  federal  government  is  not  the  only  cor- 
poration which  issues  paper  currency  of  the 
convertible  type.  Some  of  our  private  corpora- 
tions issue  this  form  of  media  of  exchange. 
Our  national  banks  issue  such  currency,  and 
this  is  called  (4)  national  bank  notes.  These 
bank  notes  are  redeemable  on  demand,  and  are 
also  fully  secured  by  specific  funds  (United 
States  bonds)  deposited  in  the  federal  treasury 
department  by  the  banks  which  issue  them.  In 
addition  to  the  national  bank  notes,  we  have 
other  forms  of  convertible  paper  currency  issued 
by  the  banks,  whether  national,  state,  or  private. 
We  have  (5)  checks,  drafts,  and  circular  letters  of 
credit?  and  these  forms  enormously  swell  the 
volume  of  our  currency.  They  are  not,  however, 

1  Checks,  drafts,  and  circular  letters  of  credit  are  the  forms  of 
the  orders  which  individuals  and  banks  make  upon  other  individ- 
uals and  banks  for  the  payment  of  certain  sums. 


EXCHANGE:  MONEY  A  MEDIUM  OF  EXCHANGE    183 

based  upon  specific  funds  which  are  held  in  re- 
serve, either  by  the  government  or  by  the  banks. 
Their  security  depends  entirely  upon  the  gen- 
eral funds  of  these  private  corporations.  They 
are,  however,  redeemable  on  demand,  whenever 
presented,  and  are  consequently  for  the  most 
part  safe. 

One  property  belongs  to  these  forms  of  cur- 
rency —  checks,  drafts,  and  letters  of  credit  — 
which  the  other  forms  of  convertible  paper  do 
not  possess,  if  we  except  the  treasury  notes. 
These  media  of  exchange  are  very  elastic  ;  they 
can  increase  or  decrease  in  proportion  to  the 
increase  or  decrease  in  the  demand  for  them. 
From  the  very  nature  of  money,  from  the  fact 
that  it  serves  as  a  medium  in  the  exchange  of 
goods  which  are  constantly  changing  in  their 
volume  and  quality,  it  follows  that  money  should 
likewise  possess  the  property  or  quality  of  being 
elastic  or  able  to  increase  or  decrease  with  the 
demand  for  it. 

The  metallic  money  of  which  we  have  spoken 
changes  in  volume,  but  as  a  rule  its  changes 
are  not  in  proportion  to  or  at  the  time  of  the 
changes  in  the  demand  for  it.  It  requires  time 
in  which  to  mine  and  mint  it.  This  lack  of 
elasticity  is  also  characteristic  of  silver  and  gold 
certificates ;  they  are  merely  representatives  of 
coin  of  exactly  the  same  amount.  In  fact, 


1 84    PRINCIPLES  OF  WEALTH  AND  WELFARE 

most  of  our  government  paper  and  all  of  our 
coin  and  bank  notes  are  inelastic.  They  do  not 
meet  the  changes  in  the  demand  for  money, 
which  are  caused  by  changes  in  the  seasons, 
crops,  etc.  It  requires  too  much  time  in  which 
to  increase  or  decrease  these  forms  of  money. 

This  lack  of  elasticity,  of  ready  expansion 
and  contraction,  in  our  currency  has  called 
forth  much  agitation  for  a  change,  especially  in 
our  bank-note  system.  Our  bank  notes  are  at 
present  very  safe  and  sound,  though  they  do  not 
possess  the  property  of  elasticity.  Whether  or 
not  our  national  banks  should  be  allowed  by  the 
federal  government  to  issue  a  certain  amount 
of  bank  notes  secured  by  one  third  of  their 
amount  in  coin  and  two  thirds  of  it  in  good  and 
easily  marketable  securities,  as  Germany  per- 
mits, we  are  not  quite  prepared  to  say.  Such 
a  plan  would  unquestionably  give  us  a  more 
elastic,  expanding  and  contracting,  currency. 
Would  it  also  cause  our  bank  notes  to  remain 
perfectly  safe  ?  We  are  most  strongly  inclined 
to  think  so,  provided  the  federal  government  is 
very  exacting  in  its  supervision.  Elasticity  is 
a  most  desirable  property  in  a  medium  of 
exchange,  and  the  business  world  needs  it,  but 
safety  is  a  more  desirable  one. 

Inconvertible  Paper  Money  or  Media  of  Ex- 
change.—  The  desire  to  expand  the  currency 


EXCHANGE:  MONEY  A  MEDIUM  OF  EXCHANGE  185 

of  a  people  has  been  almost  universal,  and  very 
many  have  been  the  schemes  of  such  expansion. 
That  economic  life  at  times  demands  more 
media  of  exchange  than  it  does  at  other  times, 
needs  no  detailed  discussion.  This  situation 
arises  from  the  very  nature  of  exchanges  and 
from  the  very  function  of  a  medium  of  these 
exchanges.  Economic  life  would  be  at  a  stand- 
still were  its  calls  for  such  media  always  the  same. 
The  governments  have  felt  these  calls  for 
greater  quantities  of  money,  as  well  as  those 
for  smaller  quantities.  They  have  at  times,  es- 
pecially in  their  own  financial  emergencies,  an- 
swered these  calls  by  issuing  the  form  of  paper 
currency  called  the  treasury  notes.  And  of  this 
form  of  money  we  have  already  spoken.  They 
have  also  in  times  of  their  own  emergencies 
issued  paper  currency  to  which  they  assign 
a  large  legal  tender  power  and  which  they 
promise  to  redeem  at  some  very  indefinite  time. 
This  form  of  government  paper  is  called  incon- 
vertible, because  the  provision  for  its  redemp- 
tion is  indefinite  and  uncertain,  and  the  time  of 
redemption  at  the  wish  of  the  government  itself, 
not  at  the  demand  of  the  holder  of  such  paper. 
And  this  medium  is  usually  issued  at  a  time 
when  the  general  financial  ability  of  the  gov- 
ernment is  by  no  means  great,  and  conse- 
quently the  confidence  which  is  placed  in  the 


1 86    PRINCIPLES  OF  WEALTH  AND  WELFARE 

government  is  not  sufficient  to  cause  its  paper 
to  exchange  at  par  value.  Such  paper  money, 
therefore,  depreciates,  at  times  very  greatly, 
brings  disturbance  into  prices,  tends  to  estab- 
lish a  secondary  standard  of  value  and  prices, 
and  finally  drives  the  better  and  dearer  money 
out  of  use. 

These  inconvertible  forms  of  paper  cur- 
rency, which  have  at  times  been  called  green- 
backs, have  been  resorted  to  at  many  different 
times  and  by  many  peoples.  The  experience 
of  the  world  has,  however,  shown  that  such 
media  of  exchange,  instead  of  being  of  advan- 
tage, instead  of  being  a  productive  power,  have 
brought  disturbance,  depreciation,  demoraliza- 
tion, and  loss.  And  the  American  people  at 
times  in  their  history,  notably  from  1862  to 
1863,  have  dealt  with  such  an  instrument,  which 
they  supposed  was  possessed  of  productive 
power,  but  which  was  in  reality  an  instrument 
of  destruction. 

QUESTIONS 

(1)  Would  you  accept  one  form  of  media  of  exchange 
as  readily  as  you  would  another? 

(2)  Why  do  the  bank  notes,  which  are  issued  by  the  first 
national  bank  of  Richmond,  Virginia,  circulate  freely  through- 
out the  United  States? 

(3)  Would  you  prefer  a  $20  gold  coin  to  a  $20  gold 
certificate  ? 


EXCHANGE:  MONEY  A  MEDIUM  OF  EXCHANGE  187 

(4)  Would  you  prefer  a  $20  gold  coin  to  a  $20  green- 
back (U.S.  note)  ? 

(5)  Double    your  money.      Have    you    doubled    your 
wealth  ? 

(6)  Double    your    money.     Have    you   doubled    your 
welfare  ? 


CHAPTER  XII 

THE    STATE A    PRODUCER   OF   WEALTH 

The  State  as  a  Consumer  and  a  Producer.  — 

Under  the  section  devoted  to  the  consump- 
tion of  wealth,  we  have  seen  that  the  state,  as 
well  as  the  individuals,  has  many  and  varied 
wants.  The  state  is,  therefore,  a  consumer  of 
wealth.  And,  according  to  our  ideal  of  the  rela- 
tions of  consumption  and  production,  the  state 
has  no  right  to  exist  unless  it  is  also  a  producer 
of  wealth,  and  of  as  much  wealth  as  it  con- 
sumes. Is  the  state  really  a  producer  ?  As  we 
have  already  seen,  economic  man  is  surrounded 
by  nature  and  her  forces  and  also  by  social 
environments.  He  lives  and  moves,  consumes 
and  produces  wealth,  amid  these  surroundings. 
He  puts  forth  his  activity  and  efforts  in  a  col- 
lective body  of  individuals  which  we  call  the 
state.  Does  this  state  aid  the  individual  in 
producing  wealth?  Does  it  in  itself  produce 
wealth  or  the  conditions  of  wealth  and  welfare  ? 
Functions  of  the  State. —  Answers  to  these 
questions  can  best  be  discovered  in  the  analysis 

188 


THE  STATE  — A  PRODUCER  OF  WEALTH     189 

of  the  functions  and  purposes  of  the  state.  But 
these  functions  vary  more  or  less  with  the  dif- 
ferent stages  of  civilization  and  with  the  pecul- 
iar political  philosophy  of  a  people.  To  expect 
to  find  in  all  of  the  states  exactly  the  same  pur- 
poses and  functions,  is  to  assume  that  all  the 
peoples  who  make  up  these  states  have  wants 
and  tastes,  as  well  as  thoughts,  of  exactly  the 
same  nature  and  quality.  Such  an  assumption 
is,  to  be  sure,  merely  ideal,  if  not  indeed  entirely 
fanciful  and  visionary.  Every  state  has  a 
personality  of  its  own,  and  this  is  made  up  of 
the  personalities  of  all  of  its  citizens.  The 
American  state  is  in  some  of  its  aspects  dif- 
ferent from  the  German  state,  though  there  is 
much  in  common  between  them.  The  func- 
tions of  the  American  state  are,  therefore,  not 
exactly  the  same  as  those  of  the  German  state. 
While  there  are  distinct  differences  in  the 
functions  of  different  states,  it  seems  to  us 
that  these  differences  are  more  apparent  than 
real,  more  in  form  than  in  fundamental  princi- 
ples. In  our  present  consideration  we  shall, 
therefore,  deal  with  the  more  fundamental  and 
vital  aspects ;  we  shall  deal  with  the  functions 
which  essentially  belong  to  every  modern 
state  —  the  great  functions  of  protection  and 
development. 

(a)  Protective  Function. — This  vitally  impor- 


190    PRINCIPLES  OF  WEALTH  AND  WELFARE 

tant  function  of  government  is  of  a  twofold 
nature.  The  state1  protects  the  individual  in  all 
the  manifold  aspects  of  his  life  and  effort,  and 
also  protects  the  collective  body  or  public  from 
the  individual's  numerous  encroachments  upon 
its  rights  and  privileges.  The  collective  body 
of  citizens  and  the  individual  also  are  protected 
against  encroachment,  invasion,  or  destruction, 
from  without;  are  protected  from  foreign  ene- 
mies. They  are  also  protected  against  the 
damages  which  arise  from  insurrection  and  civil 
war,  from  within.  The  state  must  maintain  ( i )  an 
efficient  navy  and  army  for  these  very  purposes. 
And  these  instruments  of  government  not  only 
aid  in  protecting  the  individual  and  the  public 
from  encroachments  upon  their  rights  and  privi- 
leges, but  also  help  in  maintaining  a  general 
standard  of  peace  and  order,  both  at  home  and 
abroad,  for  the  benefit  of  the  individual's  eco- 
nomic life. 

In  addition  to  these  military  departments,  the 
state  must  maintain  (2)  a  judicial  department. 
By  means  of  its  courts  the  government  renders 
invaluable  aid  to  the  production  of  wealth  and 
welfare.  It  protects  the  inviolable  liberty  of 
the  individual  to  work ;  saves  his  property  from 
damages,  by  trespass,  theft,  and  robbery;  and 

1  We  here  use  the  term  "state"  in  a  general  sense ;  it  includes 
all  the  groups  —  nation,  state,  county,  municipality. 


THE  STATE  — A  PRODUCER  OF  WEALTH     191 

explains  and  enforces  the  contracts  which  he 
makes  with  other  individuals.  By  means  of 
its  (3)  legislative  and  executive  departments  the 
state  also  provides  against  the  diseases  of  the 
social  body,  and  thereby  it  adds  greatly  to 
the  productive  power  of  this  body,  as  well  as 
to  that  of  its  individual  members.  It  places 
under  key  and  guard  the  mean  and  the  vicious. 
It  provides  places  for  the  pauper  and  the  seri- 
ously deformed  in  body  or  mind.  It  excludes 
or  expels  the  foreigner  who  would  bring  degrad- 
ing or  dangerous  ideas  and  practices.  And  at 
times  the  state  takes  the  life  of  one  individual 
for  the  sake  of  the  welfare  of  the  other  individ- 
uals; it  puts  out  of  the  world  those  who  are 
dangerous  to  the  life  and  property  of  the  indi- 
vidual. All  of  this  work  on  the  part  of  the 
state,  while  it  does  not  directly  produce  wealth, 
adds  enormously  to  the  productive  power  of  the 
individual  and  the  community.  It  creates  the 
vital  conditions  for  both  the  production  and 
the  enjoyment  of  wealth. 

(6)  Developmental  Function.  —  This  function 
which  we  have  called  the  protective,  though  it 
is  the  first  to  be  worked  out  by  a  people,  is  by 
no  means  the  only  great  governmental  func- 
tion. A  state  should  not  only  furnish  protec- 
tion, but  it  should  also  take  a  direct  part  in 
developing  conditions  under  which  wealth  and 


192     PRINCIPLES  OF  WEALTH  AND  WELFARE 

welfare  may  be  multiplied.  In  performing  the 
protective  function  the  state  aids  only  indirectly 
in  producing  wealth  and  welfare.  It  should 
also  aid  directly.  The  government  should  main- 
tain (i)  an  efficient  and  uniform  system  of 
weights  and  measures,  according  to  which  all 
goods  are  weighed  and  measured  for  the  mar- 
ket, (2)  a  stable  and  efficient  system  of  money,  as 
a  standard  of  value  and  a  medium  of  exchange, 
and  (3)  an  efficient  postal  system,  by  which  news 
and  intelligence  are  transmitted  from  place  to 
place  throughout  its  domains.  The  state 
should  render  all  these  services,  and  in  so 
doing  it  aids  directly  the  production  of  wealth 
and  welfare. 

And  when  the  state  establishes  and  promotes 
(4)  a  standard  of  education,  it  is  creating  con- 
ditions which  are  possessed  of  wonderfully 
great  productive  power.  It  not  only  causes 
the  individual  to  become  a  more  efficient  pro- 
ducer of  wealth,  as  well  as  a  better  citizen, 
but  it  also  adds  to  the  efficiency  or  productive 
power  of  all  the  other  agents  of  production. 
The  state,  in  collecting,  formulating,  and  pub- 
lishing (5)  the  statistics  of  business  life,  is  pro- 
ducing the  conditions  of  intelligence  under 
which  the  individual  producer  may  work  to 
greater  advantage.  The  state  in  granting  (6) 
patents  and  copyrights,  in  granting  monopoly 


THE  STATE  — A  PRODUCER  OF  WEALTH     193 

privileges  for  a  time  to  that  individual  whose 
brain  and  energy  have  discovered  some  new 
instrument  or  thought,  which  is  of  benefit  to  the 
world,  is  a  producer  of  the  conditions  of  wealth. 
When  the  state  (7)  digs  canals,  thereby  creating 
great  and  advantageous  waterways,  when  it 
dredges  harbors,  builds  lighthouses,  and  main- 
tains life-saving  stations,  when  it  aids  in  build- 
ing a  great  railway  through  a  new  and  unsettled 
territory,  when  the  state  does  all  of  these  things 
for  the  benefit  of  the  individual  and  the  public, 
it  is  producing  wealth  and  welfare  upon  an 
enormous  scale. 

That  the  state,  when  it  performs  all  of 
these  developmental  functions,  is  a  producer1  of 
wealth  few  people  deny.  Upon  this  point 
there  is  substantial  agreement.  But  when 
the  state  subsidizes  steamship  companies,  when 
it  protects  certain  producers  by  means  of 
tariffs,  and  when  it  undertakes  to  own  and 
operate  certain  great  industries,  like  the  rail- 
ways, the  state  is  entering  into  highly  debatable 
fields.  Whether  the  state  when  it  enters  these 
fields  is  really  a  producer  of  wealth  and  welfare, 
upon  this  question  there  is  a  vast  difference  of 
opinion. 

1  We  mean  here  by  the  term  "producer  of  wealth,"  that  the 
state  in  performing  these  functions  creates  more  utilities  than  it 
consumes  in  performing  them. 


194    PRINCIPLES  OF  WEALTH  AND  WELFARE 

Developmental  Function:  (8)  a  Protective  Tariff.1 
— A  tariff  duty  as  a  tax,  and  to  an  extent  a 
means  of  protection  to  industries,  is  well-nigh 
of  universal  use.  England  alone  of  all  the 
great  peoples  now  works  largely  upon  the 
principle  of  free  exchange  of  goods  between 
the  nations  or  upon  the  principle  of  a  tariff  for 
revenue  exclusively.  All  the  other  important 
governments  have  a  higher  or  lower  protective 
tariff  wall.  They  collect  customs  duties  upon 
the  goods  which  are  imported  into  their  borders. 
They  collect  tariff  taxes  both  for  the  purpose 
of  securing  revenue  for  the  state  and  also  pro- 
tection to  the  makers  of  certain  products  against 
foreign  competition. 

As  we  have  seen,  under  the  head  of  com- 
merce, the  ideal  for  the  exchange  of  goods 
between  people  of  the  same  nation  is  that  of 
the  most  perfect  freedom.  And  we  believe 
that  such  freedom  promotes  the  amount  and 
the  diversity  of  skill,  division  of  labor,  and  spe- 
cialization of  trade;  we  believe  that  such  freedom 
of  exchange  is  indeed  in  itself  an  instrument 
which  produces  wealth. 

Why  should  not  the  same  principle  apply  in 

1 A  tariff  is  a  tax  upon  the  goods  of  one  nation  when  trans- 
ported into  another  nation.  The  United  States  government 
places  taxes  upon  certain  goods  that  are  brought  into  its  ports 
from  other  countries,  and  these  taxes  we  call  customs  duties  or 
tariffs. 


THE  STATE  — A  PRODUCER  OF  WEALTH     195 

the  case  of  the  exchange  of  goods  between 
different  nations  ?  We  have  already  seen  that 
the  state  has  its  manifold  wants,  and  that 
these  must  be  satiated  by  means  of  wealth 
in  the  shape  of  public  revenue.  We  believe 
that  the  experience  of  governments  has  for  the 
most  part  demonstrated  the  utility  and  perhaps 
the  fairness  of  securing  a  considerable  portion 
of  this  revenue  from  taxes  placed  upon  imported 
goods.1  The  question  which  we  shall  now  dis- 
cuss is,  therefore,  not  that  of  complete  freedom 
of  trade  among  the  nations.  Our  problem  is 
not  free  trade,  but  tariff.  Shall  our  tariff  be 
used  for  revenue  exclusively  ?  Shall  it  be  used 
for  revenue  primarily  and  for  protection  to 
industries  incidentally  ? 

Tariffs  exclusively  for  revenue  can  be  placed 
only  upon  those  few  imported  goods  which  are 
not  produced  in  the  country  that  levies  the  tax. 
Such  tariffs,  while  they  bring  revenue  to  the 
state,  afford  no  protection  whatever  to  its  indus- 
tries, for  there  is  no  home  production  of  these 
goods.  But  exceedingly  few  are  the  products 
that  are  imported  into  a  vast  and  diversified 
country  like  our  own,  which  are  not  produced 
at  home  in  some  quantity;  and  for  us  to  secure 

1  But  not  a  few  students  believe,  that  it  would  be  of  greater 
advantage  and  fairness  for  a  nation  to  have  perfect  freedom  in 
her  foreign  commerce  and  to  collect  her  public  revenue  from 
other  sources  than  tariffs. 


196    PRINCIPLES  OF  WEALTH  AND  WELFARE 

a  large  revenue  from  tariffs  upon  these  few 
products  is  practically  impossible.  For  our 
federal  government  to  secure  maximum  revenue 
from  its  tariffs,  it  must,  it  seems  to  us,  levy  a  rate 
upon  a  very  considerable  number  of  imported 
goods  which  are  also  produced  at  home.  Such 
tariffs  would  be  for  revenue  primarily,  not  ex- 
clusively, and  also  for  protection  to  certain  home 
producers.  The  American  producers  of  that 
kind  of  goods,  which  are  imported  and  upon 
which  the  tariffs  are  laid,  are  certainly  to  the 
extent  of  these  taxes  protected  against  their 
foreign  competitors.  But  the  American  con- 
sumer of  the  imported  goods  pays  a  part,  if  not 
all,  of  the  taxes,  at  least  in  the  first  instance. 
Let  us  say,  by  way  of  illustration,  that  the 
English  manufacturer  can  sell  cotton  cloth  de- 
livered in  New  York  City  at  20  cents  a  yard. 
If  our  federal  government  collects  5  cents  per 
yard  in  tariff  duties,  the  American  consumer 
will  have  to  pay  at  least  25  cents  per  yard,  un- 
less the  American  producers  of  this  very  grade 
of  cotton  cloth  by  competing  with  each  other 
for  the  American  market  can  and  will  supply 
it  at  a  smaller  price.  This  tariff  most  certainly 
eliminates  some  of  the  competition  under  which 
the  American  producers  work,  and  gives  them 
a  greater  control  of  the  American  market.  If 
the  tax  is  very  high,  it  sweeps  away  all  com- 


THE  STATE  — A  PRODUCER  OF  WEALTH     197 

petition  from  abroad,  for  no  goods  whatever 
will  be  imported  when  the  tariff  placed  upon 
them  is  very  great.  One  American  producer 
now  competes  only  with  the  other  American 
manufacturers  of  the  same  goods.  The  tariff, 
though  laid  primarily  for  revenue  purposes, 
therefore,  protects  the  American  producer  and 
apparently  at  the  cost  of  the  American  con- 
sumer. 

But  is  the  burden  of  the  tariff  entirely  borne 
by  the  consumer,  as  many  people  think?  Is 
the  tax  entirely  borne  by  the  consumer?  To 
say  that  it  is  borne  by  him  alone,  is  to  assume 
that  the  consumer  has  no  choice  whatever  in 
the  cotton  cloth  or  other  goods  which  he  con- 
sumes, that  he  always  buys  the  same  quantity 
regardless  of  their  price,  and  that  he  is  a  very 
slave  to  the  producer  of  these  goods.  That 
such  an  assumption  is  incorrect  we  have  already 
proved,  under  the  head  of  monopoly  production. 

While  we  cannot  think  that  the  consumer 
bears  all  of  the  burden  of  the  tariff,  —  and  all 
taxes  of  whatever  kind  are  truly  a  burden  upon  a 
people,  —  we  readily  grant  that  the  consumer 
bears  a  part  of  this  burden.  We  contend,  how- 
ever, that  the  producer  in  a  progressive  com- 
munity, where  all  producers  are  eagerly  striving 
for  maximum  returns  from  their  undertakings, 
bears  part  of  this  burden.  Maximum  returns 


198    PRINCIPLES  OF  WEALTH  AND  WELFARE 

come,  as  we  know,  from  extensive  dealings  as 
well  as  from  high  price  dealings.  And  the 
producer,  whether  he  will  it  or  not,  must  give  to 
the  consumer  of  his  goods  some  of  the  benefits 
that  come  to  him  from  the  protection  which 
the  tariffs  afford  him.  His  own  selfish  aims  — 
maximum  net  returns  —  drive  him  to  sell  his 
goods  at  a  fair  price,  at  least  at  that  price 
which  will  bring  him  greatest  profits.  He  is, 
of  course,  well  aware  that  a  smaller  quantity  of 
his  goods  is  sold  when  the  price  is  higher. 

Is  such  a  tariff,  a  tax  for  revenue  primarily 
and  for  protection  incidentally,  a  producer  of 
wealth  ?  Does  such  a  protective  policy  add  to 
the  productive  power  of  all  the  people  of  a  nation, 
to  the  consumers,  as  well  as  to  the  producers  ? 
This  tariff  is  most  certainly  a  burden  upon  many 
of  the  people,  if  not  indeed  all  of  them.  But  is 
not  this  burden  more  than  overbalanced  by  the 
benefits,  specific  and  general,  which  accrue 
from  such  a  tariff  policy  ?  To  these  questions, 
it  seems  to  us,  no  absolutely  exact  and  un- 
changing answer  can  ever  be  made.  We  well 
know  that  the  burden  of  obtaining  revenue, 
with  which  to  meet  the  many  necessary  wants 
of  the  state,  must  of  necessity  be  borne  by  the 
individuals.  And  that  the  tariff  may  at  times 
be  a  means  of  producing  wealth  or  the  condi- 
tions of  wealth  and  welfare  for  a  nation,  and  that 


THE  STATE  — A  PRODUCER  OF  WEALTH     199 

it  may  be  at  these  times  the  least  burdensome 
method  of  securing  this  public  revenue,  we  are 
most  strongly  inclined  to  believe.  This  opin- 
ion is,  however,  expressed  of  a  tariff  which  is 
levied  primarily  for  revenue  and  incidentally 
for  protection.  A  tariff  tax  laid  primarily  for 
special  protection  to  a  few  producers,  and  not 
essentially  for  public  revenue,  cannot,  we  think, 
be  defended  by  sound  and  unbiased  reason. 

We  have  just  said  that  a  tariff,  levied  pri- 
marily for  public  revenue  and  incidentally  for 
protection  to  the  producers  of  certain  goods, 
may  at  times  be  for  a  nation  a  producer  of 
wealth  or  of  the  conditions  of  wealth  and  welfare. 
In  that  country,  in  which  capital  and  labor 
exist  in  insufficient  quantities,  in  which  interest 
and  wages  are  in  consequence  much  higher 
than  they  are  in  more  thickly  settled  countries, 
a  tariff  which  ^-protects  in  a  fairly  uniform  man- 
ner aids  in  creating  new  fields  of  production. 
It  increases  the  diversity  and  energy  of  eco- 
nomic life.  It  causes  more  of  manufacture, 
transportation,  and  domestic  commerce,  as  well 
as  of  agriculture,  and  adds  to  the  total  produc- 
tive power  of  a  people. 

That  the  people  of  the  United  States  as 
a  whole  have  received  benefits  from  such  a 
tariff,  and  that  such  a  policy  has  at  times 
been  for  us  an  instrument  of  production,  we 


200    PRINCIPLES  OF  WEALTH  AND  WELFARE 

fully  believe.  Early  in  our  existence  as  a 
nation  we  were  almost  exclusively  an  agricul- 
tural people.  Most  of  our  activity  and  energy, 
and  most  of  our  capital  and  business  man- 
agement, were  employed  upon  the  soil,  were 
spent  in  producing  the  elementary  utilities  — 
the  raw  materials.  We  were,  moreover,  pos- 
sessed of  but  a  few  million  people  and  a  very 
small  quantity  of  capital,  though  we  had  nature 
and  her  forces  around  us  in  great  abundance. 
To  convert  our  raw  materials  or  elementary  utili- 
ties into  many  and  varied  higher  forms  was  then 
very  costly.  We  had  to  pay  high  wages  and 
interest.  Our  business  management  had  not  yet 
adjusted  and  correlated  all  the  agents  of  produc- 
tion in  such  a  manner  as  was  required  to  manu- 
facture the  higher  forms  of  goods  at  a  low 
cost.  The  American  manufacturer  could  not 
then  compete  with  the  European  producer  un- 
der the  conditions  of  free  competition.  The 
American  produced  his  goods  at  a  high  cost 
while  the  European  manufactured  his  goods  at 
a  low  cost,  and  the  charges  of  transportation 
across  the  Atlantic  in  a  sail  ship  were  not  very 
great.  For  the  time  being,  therefore,  the  Amer- 
ican producer  of  the  higher  forms  of  goods 
must  either  put  forth  much  greater  activity  and 
effort  than  did  the  European,  or  completely 
fail.  Our  federal  government  threw  around  the 


THE  STATE  — A  PRODUCER  OF  WEALTH    2OI 

manufacturer  a  wall  of  protection,  and  he  was 
given  a  field  of  work  which  was  to  an  extent 
his  own.  By  virtue  of  the  great  natural  re- 
sources which  surround  him,  by  virtue  of  his 
own  great  energy  and  skill,  and  finally  by 
the  aid  of  a  tariff  protection,  the  manufacturer 
has  become  a  great  and  permanent  element  and 
force  in  our  life.  And  his  coming  has  added 
energy  and  vitality  to  all  the  other  aspects  of 
our  economic  life.  Manufacture  is  so  produc- 
tive of  the  conditions  of  wealth  and  welfare  that 
it  develops  all  the  other  groups  of  production. 

Those  were  the  days  of  our  economic  youth, 
and  a  tariff  was  then  an  agent  for  the  increas- 
ing of  our  total  productive  power.  To-day  we 
are  a  great  giant  in  the  industrial  or  economic 
world.  That  our  tariff  policy,  though  it  has  at 
times  been  largely  for  other  than  public  inter- 
ests, has  aided  us  in  becoming  so  enormously 
great  within  such  a  marvelously  short  space  of 
time,  we  fully  believe.  We  contend,  however, 
that  its  assistance  has  been  comparatively  slight, 
and  that  the  fundamental  and  vital  elements  of 
our  wonderful  economic  progress  have  been 
American  labor,  capital,  natural  resources,  and 
business  sense. 

Developmental  Function:  (9)  Governmental 
Ownership  and  Operation  of  Certain  Industries.  — 
The  tariff  question,  especially  as  to  whether  a 


202    PRINCIPLES  OF  WEALTH  AND  WELFARE 

tariff  system  is  a  means  of  adding  to  the  pro- 
ductive power  of  a  people,  is  not  the  only 
question  of  much  debate  and  difference  of 
opinion.  How  far  the  state  shall  own  and 
operate  industries  is  likewise  a  vitally  important 
problem.  And  the  solution  of  this  problem 
by  different  nations  has  been  very  different. 
Among  some  peoples  the  state  exists  primarily 
and  fundamentally  for  its  protective  functions. 
It  supplies  the  individual  with  the  conditions 
of  peace  and  order,  with  a  uniform  system  of 
weights  and  measures,  with  a  more  or  less 
stable  standard  of  value,  with  the  media  of  ex- 
change, and  with  fairly  efficient  postal  and 
educational  systems.  For  other  peoples  the  gov- 
ernment performs  many  developmental  func- 
tions. It  provides  the  individual  with  all  of 
these  and  many  other  vital  conditions.  It  also 
participates  in  some  of  the  most  fundamental 
of  the  industries,  and  at  times  operates  these 
industries  for  the  sake  of  adding  to  the  pro- 
ductive power  of  all  of  its  people  and  also  for 
the  sake  of  revenue  to  itself. 

Telegraphs  and  Telephones.  —  Shall  the  state 
own  and  operate  the  telegraph  and  telephone 
industries?  Both  of  these  lines  of  industry 
have  become  almost  fundamentally  and  vitally 
necessary  to  the  life  of  a  people.  Is  their  oper- 
ation when  under  private  corporations  more  or 


THE  STATE  — A  PRODUCER  OF  WEALTH    203 

less  productive  of  wealth  and  welfare  than  it 
is  when  under  the  management  of  the  state  ? 
This  vital  question  has  been  answered  in  both 
ways.  Some  nations  have  come  to  the  decision 
that,  for  themselves  at  least,  private  ownership 
and  operation  of  these  industries  are  best  and 
most  efficient.  Others  have  come  to  the  op- 
posite conclusion,  and  public  ownership  has 
among  them  been  put  into  operation.  The 
people  of  our  own  country,  for  the  most  part, 
still  believe  in  private  management.  England 
has  put  public  management  into  fairly  success- 
ful operation. 

Both  of  these  industries  belong  to  the  most 
important  field  of  the  transmission  of  news  and 
intelligence,  and  from  many  points  of  view  they 
are  to  be  considered  in  exactly  the  same  light 
as  is  the  postal  system.  In  all  of  these  indus- 
tries the  aim  is  identically  the  same  —  the  trans- 
mission of  intelligence.  The  difference  between 
them  is  in  the  instrument  of  transmission, 
whether  by  wire  or  by  carrier.  The  postal  sys- 
tems of  the  world  are  at  present  governmental. 
The  fact  that  this  system  has  been  so  vitally 
necessary  for  the  government's  own  use  —  for 
military,  legislative,  judicial,  and  executive  pur- 
poses —  is  perhaps  the  greatest  reason  why  the 
postal  industry  has  been  undertaken  by  the  state. 
But  the  telegraph  and  telephone  are  now  fast 


204    PRINCIPLES  OF  WEALTH  AND  WELFARE 

becoming  as  necessary  to  the  state  for  its 
own  use  as  is  the  postal  system,  and  possibly 
these  too  will  soon  become  governmental 
industries  throughout  the  advanced  nations 
of  the  world. 

Railways.  —  Shall  not  the  state  own  and 
operate  the  railways  also  ?  To  this  question  va- 
rious answers  have  been  given.  Some  European 
countries  have  declared  in  favor  of  the  affirma- 
tive, while  others  believe  in  the  private  operation 
of  this  great  and  fundamentally  important  in- 
dustry. That  this  great  industry  is  of  most 
vital  importance  to  all  the  other  industries 
of  whatever  kind,  needs  no  argument.  It 
belongs  to  the  transportation  services  of  a 
people.  It  belongs  to  the  transportation  of 
its  intelligence,  persons,  and  products.  Such 
services,  as  we  have  seen,  are  of  fundamental 
necessity  to  the  production  of  wealth  and  wel- 
fare. Shall  such  an  industry,  which  bears  the 
most  vital  relation  to  all  the  other  industries  — 
to  the  farmer,  miner,  manufacturer,  and  commer- 
cial agent  —  be  owned  and  operated  by  the 
state  or  by  private  corporations  ?  This  is  the 
vital  question. 

In  order  to  answer  this  great  question  it  is 
necessary  to  find  out  which  operation  is  the 
more  efficient.  If  public  operation  is  the  more 
economical  and  efficient,  then  such  operation 


THE  STATE  — A  PRODUCER  OF  WEALTH    205 

is  the  ideal,  and  the  sooner  it  can  be  realized 
the  better  it  will  be  for  the  people  and  the 
government  alike.  If  private  management  is 
the  more  economical  and  efficient,  then  the  state 
should  not  by  any  means  undertake  to  own  and 
operate  these  industries.  That  there  are  many 
abuses  under  private  management  is  very  well 
known,  but  that  state  management  will  relieve 
these  abuses  is  a  highly  debatable  proposition. 
Governmental  management  of  the  railways  could 
unquestionably  bring  more  uniformity  into  the 
system  and  could  do  away  with  rebates  and  dis- 
criminating charges  for  freight,  but  whether  it 
would  accomplish  these  desirable  ends  is  ex- 
ceedingly doubtful.  So  far  in  our  governmental 
activity  corruption  has  played  more  or  less  a 
part ;  and  corruption  means  a  lack  of  uniformity, 
means  abuses.  It  is  claimed  that  governmental 
management  would  als^D  bring  cheaper  rates  to 
the  consumer  of  railway  services.  It  is  well 
known  that  railway  management  under  private 
corporations  oftentimes  brings  great  returns 
and  profits.  That  the  railway  managers  of  our 
own  country  could  at  times  afford  to  sell  their 
services  at  cheaper  rates,  we  do  not  doubt.  But 
it  is  equally  well  known  that  government  man- 
agement is  high-price  management  —  that  it  is, 
as  a  rule,  less  economical  and  less  efficient  than 
private  management.  We,  therefore,  seriously 


206    PRINCIPLES  OF  WEALTH  AND  WELFARE 

doubt  that  state  management  would  in  actual 
fact  bring  cheaper  rates  to  the  consumer. 

To  the  question,  shall  the  state  own  and 
operate  the  postal  system,  we  are  inclined  to 
answer  in  the  affirmative.  While  the  operation 
of  this  industry  by  the  state  is  possibly  at  a 
higher  cost  than  would  be  its  operation  under 
private  corporations,  its  service  is  perhaps  more 
uniform  and  its  charges  are  perhaps  lower, 
since  the  state  attempts  to  make  no  profits 
whatever.  Shall  the  state  own  and  manage 
the  telegraph  and  telephone  industries?  We 
are  inclined  to  answer  in  the  negative,  ancl  for 
reasons  of  economy  and  efficiency.  And  upon 
the  proposition  of  state  ownership  and  operation 
of  the  railways  we  are  most  strongly  inclined  to 
the  negative.  Governmental  operation  of  this 
industry  might  relieve  some  of  the  abuses  which 
exist  under  private  operation,  but  it  would,  cer- 
tainly in  the  United  States  at  least,  bring  many 
abuses  of  its  own.  In  theory  it  might  reduce 
the  charges,  but  the  wonderful  extension  and 
complexity  of  the  industry  are  too  great  and 
the  chances  of  corruption  too  large  for  state 
management  to  reduce  at  all  materially  the 
present  cost  of  these  services.  The  state  might 
make  revenue  for  itself  out  of  the  profits  which 
now  go  to  the  private  managers,  and  thereby 
save  the  public  from  some  of  the  burdens  of 


THE  STATE  — A  PRODUCER  OF  WEALTH     2O/ 

taxation,  but  here  too  stands  the  fact  that  gov- 
ernment management  is  higher  priced  than  is 
private  management  If  the  state  produces  rail- 
way services  at  a  higher  cost  than  does  the 
private  corporation,  it  will  be  compelled,  in 
order  to  obtain  revenue  out  of  its  profits,  to 
sell  these  services  at  a  higher  price. 

Developmental  Function:  Proper  Function. — 
In  all  these  discussions  of  the  developmental 
function,  we  have  assumed  that  it  is  the  proper 
function  of  the  state  to  undertake  anything 
which  really  creates  and  promotes  the  condi- 
tions of  wealth  and  welfare  for  its  people  as  a 
whole.  We  believe  that  this  is  a  correct 
assumption.  The  questions  of  tariff  and  gov- 
ernmental ownership  are,  therefore,  questions  of 
expediency,  not  of  function.  Does  a  protective 
tariff  bring  to  society  returns  which  are  greater 
than  its  cost  ?  If  so,  it  is  a  productive  force  for 
the  people  as  a  whole.  Does  governmental 
ownership  bring  returns  which  are  greater  than 
its  cost  ?  If  so,  it  also  is  a  productive  force  for 
the  people  as  a  whole.  If  a  protective  tariff  is 
really  a  productive  force  for  a  people,  it  is 
certainly  the  proper  function  of  the  state  to  put 
it  into  operation.  If  the  governmental  opera- 
tion of  the  railways  is  a  productive  force  for 
society  as  a  whole,  then  it  is  certainly  the  duty 
of  the  state  to  put  this  also  into  operation. 


208    PRINCIPLES  OF  WEALTH  AND  WELFARE 


QUESTIONS 

(1)  Can  a  man  operate  his  business  without  the  existence 
of  the  state? 

(2)  Is  the  government  a  producer  of  wealth  and  welfare 
when  it  protects  the  individual  in  his  business? 

(3)  Is  the  government  a  producer  of  wealth  and  welfare 
when  it  educates  the  children? 

(4)  Is  the  government  a  producer  of  wealth  and  welfare 
when  it  maintains   uniform  systems  of  weights,  measures, 
money,  postal  service,  patents,  and  copyrights? 

(5)  Is  the  government  a  producer  of  wealth  and  welfare 
when  it  maintains  lighthouses,  life-saving  stations,  and  when 
it  digs  canals  and  harbors? 

(6)  Is  the  state  a  producer  of  wealth  and  welfare  when 
it  owns  and  operates  the  telephones,  telegraphs,  and  rail- 
ways? 

(7)  Is  the  state  a  producer  of  wealth  and  welfare  when  it 
places  a  protective  tariff  upon  certain  imported  goods  ? 


SECTION    III 

CONSUMPTION  AND  PRODUCTION ;   MARKET 
PRICE— WELFARE 

CHAPTER  I 

DEMAND  AND  SUPPLY;    MARKET  VALUE  AND  PRICE 

Consumer  and  Producer.  —  We  have  now  con- 
sidered the  forces  and  principles  of  the  con- 
sumption of  wealth.  We  have  seen  how  these 
forces  and  principles  create  and  regulate  the 
consumer's  demand  for  wealth  in  its  various 
forms.  We  have  also  considered  the  forces 
and  principles  of  the  production  of  wealth.  We 
have  seen  how  these  forces  and  principles  create 
and  regulate  the  producer's  supply  of  goods  in 
their  various  forms.  We  have  discussed  the 
consumer's  price.  We  have  also,  in  our  discus- 
sion of  the  production  of  the  supply  of  goods, 
assumed  on  the  part  of  our  readers  a  certain 
knowledge  of  the  producer's  price  and  the  mar- 
ket price.  It  is  now  necessary  for  us  to  make 
an  analysis  of  the  forces  and  principles  which 
are  at  work  when  consumer  and  producer,  when 
p  209 


210    PRINCIPLES  OF  WEALTH  AND  WELFARE 

demand  price  and  supply  price,  come  together 
face  to  face  in  the  market. 

Goods  are,  as  we  know,  in  the  main  pro- 
duced in  answer  to  a  demand  for  them.  The 
producer's  ideal  is  to  produce  just  as  many 
goods  and  of  just  the  form  which  the  consumer 
calls  for.  In  a  very  extensive  and  complex  eco- 
nomic society,  as  OUKS  is,  it  is  practically  im- 
possible for  the  producer  to  find  out  exactly 
what  the  consumer  demands ;  in  actual  fact  he 
produces  too  great  or  too  small  a  quantity  of  his 
products.  The  producer  for  the  most  part  at- 
tempts not  only  to  produce  the  utilities  which 
the  consumer  wants  and  demands,  but  also  to 
sell  these  utilities  to  the  consumer  for  the  high- 
est possible  price.  By  producing  the  maximum 
amount  which  will  sell  for  a  good  price  he 
obtains  the  maximum  total  or  gross  income. 
But  in  order  to  secure  the  maximum  net  in- 
come—  income  above  all  operating  expenses 
—  the  producer  must  also  attempt  to  work  his 
agents,  forces,  and  instruments  of  production  to 
the  point  of  greatest  possible  advantage.  By 
doing  this  he  produces  his  goods  at  the  lowest 
cost.  The  producer,  therefore,  has  always  before 
him  two  sets  of  difficult  problems  to  solve.  He 
must  continually  deal  with  the  consumer,  in  or- 
der to  sell  him  that  quantity  of  goods  and  at 
that  price  which  will  bring  to  him  the  greatest 


DEMAND  AND  SUPPLY  211 

total  returns.  He  must  also  work  with  the 
agents  and  forces  of  production,  in  order  to 
produce  his  goods  at  the  minimum  cost.  This 
second  set  of  problems  we  have  already  consid- 
ered. We  must  now  consider  more  in  detail 
the  first  set,  —  the  demand  of  the  consumer  in 
relation  to  the  supply  of  the  producer. 

Demand  and  Supply;  Market  and  Market  Price. 
—  The  consumer's  wants,  as  we  have  already 
seen,  are  manifold  in  quantity  and  intensity. 
The  producer's  supplies  are  equally  varied.  The 
consumer  is  also  a  producer,  and  the  producer 
is  likewise  a  consumer.  The  coming  together 
of  the  producer  and  the  consumer  with  their 
supply  and  demand  is,  therefore,  a  very  compli- 
cated process.  The  place  where  demand  and 
supply  come  together,  where  all  the  forces  of 
consumption  meet  face  to  face  with  those  of 
production,  we  call  a  market.  The  point  at 
which  these  two  sets  of  forces  balance  for  the 
time  is  the  market  price,  and  this  price  is  ex- 
pressed in  our  common  standard  of  value,  a 
gold  dollar.  Market  price  is,  therefore,  the  equi- 
librium of  demand  price  and  supply  price.  It 
is  an  equilibrium  of  the  price  which  the  con- 
sumer is  willing  to  pay  and  the  price  which  the 
producer  can  afford  to  accept. 

These  forces  which  are  ever  at  work  in  the 
market  place  are  exceedingly  varied.  They 


212    PRINCIPLES  OF  WEALTH  AND  WELFARE 

are  at  times  exceedingly  great  and  strong, 
while  at  other  times  they  are  tiny  and  delicate. 
The  market  price  of  any  commodity  remains 
the  same  for  only  a  very  short  time ;  it  is  ever 
swinging  back  and  forth.  Let  us  illustrate  this 
point.  The  price  of  raw  cotton  is  this  morning 
at  10  o'clock  10  cents  a  pound,  at  10.30  about 
9.50  cents,  at  12  o'clock  10.20  cents,  etc.  This 
price,  at  periods,  changes  as  many  as  a  hundred 
times  within  a  few  hours,  while  for  other  periods 
it  remains  very  much  the  same  for  many  days. 
The  price  of  cotton,  as  well  as  that  of  the 
countless  other  commodities,  fluctuates  with 
the  strength  of  the  demand  for  it  and  the  sup- 
ply of  it.  The  great  and  changing  forces  of 
demand  and  supply  create  not  only  the  mar- 
ket but  also  the  market  price  with  all  of  its 
fluctuations. 

Market  Price  and  Speculation;  Demand  and 
Supply.  —  Some  of  these  fluctuations  in  the 
prices  of  cotton,  as  well  as  of  all  other  goods, 
are,  to  be  sure,  the  result  of  artificial  dealing 
with  the  mighty  forces  of  the  market.  Manipu- 
lators and  gamblers  in  prices  have  some  influ- 
ence upon  them.  As  we  have  already  said,  the 
producer  cannot  possibly  calculate  exactly  the 
demands  of  the  consumer,  or  even  the  quantity 
or  quality  of  his  own  supply.  Likewise  the  con- 
sumer cannot  calculate  exactly  the  supply  of 


DEMAND  AND  SUPPLY  213 

the  producer,  or  the  form  and  intensity  of  his 
own  demands.  There  is,  therefore,  always  more 
or  less  of  an  element  of  uncertainty  in  each 
market,  wherever  it  may  be,  and  of  whatever 
commodity  it  may  be.  In  this  element  of  uncer- 
tainty some  men,  popularly  called  gamblers  and 
manipulators  "  of  futures, "  are  at  work.  They  at 
times  make  the  consumer  and  the  producer 
think  that  the  supply  of  certain  products  is 
smaller  than  it  really  is,  and  this  tends  to  cause 
an  increase  in  the  price  of  the  products.  At 
other  times  they  make  the  consumer  and  the 
producer  think  that  the  supply  is  larger  than  it 
really  is,  and  this  tends  to  cause  a  decrease  in 
the  price  of  the  goods.  The  manipulator  of 
the  market  may,  therefore,  to  an  extent,  influ- 
ence the  market  price  of  goods.  This  influ- 
ence is,  however,  only  secondary.  The  real 
demand  and  supply,  rather  than  the  demand 
and  supply  fixed  by  the  manipulator,  funda- 
mentally determine  the  price  of  every  goods. 
The  speculator,  on  the  other  hand,  does  not 
attempt  to  create  false  impressions  as  to  the 
demand  or  the  supply  of  a  goods.  He  merely 
buys  and  sells  the  very  element  of  uncertainty. 
And  all  buyers  and  sellers  of  goods  are  in  a 
sense  buying  and  selling  at  a  price  which  is 
more  or  less  uncertain.  A  merchant  buys  his 
winter  stock  early  in  the  summer,  —  that  is,  he 


214     PRINCIPLES  OF  WEALTH  AND  WELFARE 

agrees  upon  the  price  at  least  six  months  ahead 
of  the  delivery  of  the  goods,  —  and  the  manufac- 
turer sells  this  stock  far  ahead  of  the  time  of 
the  production  and  delivery  of  the  goods. 

Size  of  the  Market  :  Local,  National,  or  Interna- 
tional. —  This  equilibrium  between  consumer 
and  producer,  between  demand  and  supply, 
may  be  merely  local,  or  it  may  be  national  or 
international.  A  market  was  once  entirely 
local.  The  producers  and  consumers  of  the 
same  locality  came  together  and  sold  and 
bought  their  goods ;  and  the  people  of  one  sec- 
tion had  no  exchanges  whatever  with  those  of 
another  section.  Before  the  time  of  the  fast 
express  train  and  the  refrigerator  car  the 
peaches  and  strawberries  of  North  Carolina  sold 
exclusively  on  a  local  market,  and  their  price 
was  fixed  by  the  forces  of  this  market.  Peaches 
then  sold  in  Greensboro,  North  Carolina,  for  the 
small  sum  of  25  cents  a  bushel.  The  same 
peaches,  if  they  could  have  been  transported 
with  safety  to  New  York  City,  would  have 
sold  for  $3.  Now  Carolina  fruits  can,  with 
safety,  and  at  not  too  great  a  cost,  be  transported 
to  New  York.  The  Carolina  producer,  after 
paying  express  or  freight  charges,  realizes  on 
that  market  $1.50  per  bushel.  He  would,  of 
course,  sell  in  North  Carolina  at  this  price,  for 
this  is  the  real  price  at  which  he  sells  in  New 


DEMAND  AND  SUPPLY  215 

York.  While  he  sells  at  home  for  $1.50,  this 
price  is  really  regulated  by  the  New  York  mar- 
ket, and  not  by  that  of  his  own  home.  And  so 
extensive  and  efficient  have  become  our  transpor- 
tation and  commercial  agencies  and  facilities, 
that  the  market  price  of  most  of  our  prod- 
ucts, though  produced  in  the  various  parts  of 
our  vast  territory,  is  fixed  by  the  forces  of  a 
national  market,  if  not  indeed  by  an  interna- 
tional one.  Let  us  consider  two  illustrations. 
The  market  price  of  gold,  since  the  cost  of  its 
transportation  is  only  a  very  small  item,  is  prac- 
tically the  same  the  world  over.  Its  price  is 
regulated  by  the  forces  of  the  world's  demand 
and  supply.  The  market  price  of  our  cotton, 
while  its  transportation  costs  more  than  does 
gold,  is  also  largely  regulated  by  world  forces 
and  in  a  world  market. 

A  Market  not  a  Geographical  Place. —  A  market 
of  goods  is  in  reality  not  a  special  geographical 
place.  It  is  anywhere  that  consumer  and 
producer  happen  to  meet  and  come  to  an  agree- 
ment ;  and  such  an  agreement  may  be  made  on 
a  public  highway,  or  in  a  Pullman  car  which  is 
flying  across  the  country.  The  forces  of  this 
market  are,  in  fact,  much  more  mental  than 
material.  The  products  which  are  exchanged 
are  material,  but  the  trade,  the  agreement  to 
exchange,  is  mental. 


2l6    PRINCIPLES  OF  WEALTH  AND  WELFARE 

A  Market :  Desires  to  buy  and  to  sell ;  Consumer's 
Value.  —  A  market  is,  therefore,  a  point  where 
all  the  mental  forces  of  consumer  and  pro- 
ducer come  together.  It  is  indeed  a  critical 
mental  point,  in  the  reaching  of  which  two 
human  souls  reveal  themselves  in  all  their 
selfishness  or  nobility.  It  is  a  point  where  the 
desires  to  buy  and  to  sell  meet  each  other  face 
to  face.  These  desires,  as  we  know,  are  depend- 
ent upon  the  wants  which  the  consumer  has 
for  a  goods,  and  upon  the  supply  of  this  goods 
which  the  producer  possesses.  The  desires  of 
the  consumer  to  buy  depend  not  only  upon 
his  wants  for  a  goods,  but  also  upon  the  value 
which  he  assigns  to  this  goods.  And  the  con- 
sumer assigns  some  value  to  every  product,  or 
rather  to  a  certain  unit  of  every  product.  Dif- 
ferent classes  of  products  are  assigned  value  by 
different  classes  of  consumers.  One  class  of 
consumers  demands  a  certain  class  of  products, 
and  thereby  gives  value  to  this  class  of  goods. 
Another  class  of  consumers  demands  a  still 
different  class  of  goods,  and  in  consequence 
assigns  value  to  this  class.  Let  us  illustrate 
this  point.  The  demand  for  coarse  cotton 
cloth  comes  in  the  main  from  the  poorer  and 
lower  classes  of  workingmen,  and  the  value  of 
this  grade  of  cotton  fabrics  is  in  the  main  given 
by  this  class  of  consumers.  The  beautiful  laces, 


DEMAND  AND  SUPPLY  217 

on  the  other  hand,  are  assigned  values  by  a  much 
higher  grade  of  consumers. 

Market  Value;  Use  Value  and  Cost  Value. — 
The  consumer  by  himself  does  not,  however, 
create  a  market.  We  must  have  the  producer, 
as  well  as  the  consumer,  before  we  can  have  a 
market.  These  two  persons,  or  rather  sets  of 
persons,  when  they  come  to  an  agreement  to 
exchange  products,  have  together  assigned  a 
value  to  the  products,  which  is  in  some  respects 
different  from  the  value  assigned  by  the  con- 
sumer alone.  We  call  this  value,  which  is 
assigned  by  both  consumer  and  producer,  the 
market  value.  And  we  call  the  value  which 
the  consumer  assigns  to  a  goods  use  value, 
while  that  which  the  producer  assigns  is  cost 
value.  When  the  use  value  and  the  cost  value 
of  a  goods  come  to  a  point  of  equilibrium,  we 
have  a  market  value,  and  the  goods  are  now 
bought  and  sold.  This  market  value,  which  is 
always  expressed  in  a  market  price,  is,  therefore, 
the  result  of  the  equilibrium  of  consumer  and 
producer,  or  of  demand  and  supply. 

Market  Price  (Value)  equals  Cost  of  Production : 
the  Ideal  and  Tendency.  —  When  the  supply  is 
always  just  as  large  as  the  demand  for  any 
goods  and  when  there  is  no  uncertainty  what- 
ever about  the  quantity  of  both  the  demand  and 
the  supply,  the  market  price  is  stable.  There 


218    PRINCIPLES  OF  WEALTH  AND  WELFARE 

are  no  changes  in  it.  If,  for  instance,  the  de- 
mand for  wheat  is  always  the  same  quantity 
and  the  supply  of  wheat  the  same  amount,  the 
market  price  of  wheat  will  remain  exactly  the 
same  from  day  to  day  and  from  season  to  sea- 
son. Under  such  a  condition,  if  perchance  such 
a  condition  ever  exists,  of  the  demand  for  and 
the  supply  of  wheat,  its  market  price  is  exactly 
equal  to  the  cost  of  its  production;  for  the  de- 
mand price  resolves  itself  into  the  cost  of  pro- 
duction. If  the  demand  is  exactly  equal  to  the 
supply,  the  demand  price  must  be  exactly  equal 
to  the  supply  price  or  cost  price.  In  this  case 
the  market  value  of  wheat  per  bushel  equals 
the  cost  of  growing  this  bushel,  and  this  cost 
includes  wages,  rent,  interest,  pay  of  business 
management,  and  insurance. 

Market  Price  (Value)  equals  Cost  and  Profits : 
in  Fact.  —  But  such  a  condition  of  the  demand 
for  and  the  supply  of  wheat,  or  of  any  other 
product  whatever,  is  purely  imaginary.  In 
actual  life  the  demand  for  wheat  is  always 
changing,  and  so  also  is  its  supply.  The  demand 
and  the  supply  are  indeed  ever  changing,  and 
these  changes  as  a  rule  are  not  in  the  same 
ratio.  The  demand  is  at  one  time  greater  than 
it  is  at  another,  while  at  the  same  time  the 
supply  of  the  goods  demanded  may  be  smaller. 
There  is  likewise  ever  present  an  element  of 


DEMAND  AND  SUPPLY  219 

uncertainty  in  both  the  demand  and  the  supply. 
These  changes  in  the  demand  and  the  supply,  as 
well  as  the  uncertainty  as  to  the  amounts  of 
either,  necessarily  cause  fluctuations  in  the  mar- 
ket price.  To  calculate,  under  such  conditions, 
exactly  what  the  market  price  will  be  in  the 
future  is,  to  say  the  least,  very  difficult,  if  not 
indeed  impossible. 

And  the  market  price  under  such  actual  con- 
ditions never  exactly  equals  the  cost  of  produc- 
ing the  goods.  Let  us  illustrate.  During  one 
season  the  market  price  of  raw  cotton  ranges 
from  i o  cents  to  17  cents  a  pound,  while  during 
the  following  season  the  market  price  ranges 
from  7  cents  to  1 1  cents.  These  great  changes 
in  the  market  price  are  due  in  part  to  the 
changes  in  the  cost  of  producing  cotton,  but 
the  cost  of  production  during  these  two  succes- 
sive seasons  does  not  change  materially.  In 
fact,  the  cost  of  producing  a  pound  of  cotton 
is  only  slightly  greater  the  first  year  than  it  is 
the  second.  During  both  seasons  the  market 
price  is  in  the  main  greater  than  the  cost  of 
production.  In  both  17  and  n  cent  cotton 
there  is  a  very  considerable  element  of  profit. 
It  costs  the  farmer  upon  the  average  6  cents  to 
produce  a  pound  of  raw  cotton,  and  this  cost 
includes  the  pay  of  business  management  and 
insurance,  as  well  as  wages,  rent,  and  interest. 


220    PRINCIPLES  OF  WEALTH  AND  WELFARE 

The  transportation  and  commercial  services, 
which  are  used  to  place  the  cotton  on  the 
market,  cost  upon  an  average  2  cents  a  pound. 
This  makes  the  total  cost  at  8  cents.  The  cot- 
ton which  sells  at  1 1  cents  a  pound  has  in  its 
market  price  3  cents  of  profits,  3  cents  per  pound 
above  all  cost  of  producing  it ;  and  that  which 
sells  for  1 7  cents  has  9  cents  of  profits. 

There  may,  therefore,  be  a  considerable  ele- 
ment of  profits  in  each  market  price.  Under 
the  imaginary  conditions,  of  which  we  have 
spoken,  the  price  equals  the  cost  of  production. 
Under  the  actual  conditions  of  business  life,  the 
price  may  be  equal  to  the  cost  of  production 
and  profits.  And  the  price  may  at  times  be 
below  the  cost  of  production.  Cotton,  which 
costs  8  cents  a  pound,  has  sold  at  times  for  about 
6  or  7  cents.  This  is,  however,  not  the  rule,  at 
least  for  any  length  of  time  or  for  large  quan- 
tities. But  under  such  conditions,  when  the 
demand  is  much  smaller  than  the  supply,  the 
market  price  equals  the  cost  of  production 
minus  a  loss.  The  market  price  may,  therefore, 
be  stated  in  the  following  form :  market  price 
=  cost  of  production  plus  profits;  or  market 
price  =  cost  of  production  minus  loss.  And  the 
profits  or  the  loss  come  as  a  result  of  the  lack 
of  balancing  or  equilibrium  of  the  demand  and 
the  supply. 


DEMAND  AND  SUPPLY  221 

Market  Price  (Value)  at  Times  equals  Cost  and 
Loss ;  Dumping  Goods.  —  We  have  just  said  that 
a  market  price  which  is  below  the  cost  of  pro- 
duction is  not  the  rule,  though  such  a  price  now 
and  then  controls  the  market  of  a  few  products. 
There  are  certain  quantities  of  almost  every 
product  which  sell  for  a  much  lower  price  than 
does  the  larger  part  of  this  product.  The  pro- 
ducer is  eager  to  produce  as  large  a  quantity  as 
the  consumer  demands.  He  desires  to  supply 
every  demand  for  his  goods.  But  since  he  can 
never  exactly  calculate  how  much  the  consumer 
will  call  for,  and  the  consumer  is  subject  to  many 
changes  in  his  wants  and  demands,  the  producer 
as  a  rule  produces  greater  quantities  than  he 
can  sell  to  the  consumer  at  a  fair  price.  What 
becomes  of  the  surplus  ? 

That  which  is  left  of  the  supply  of  a  certain 
goods  at  the  end  of  the  season  must  of  necessity 
be  sold  at  a  lower  price  than  that  which  the 
consumer  paid  during  the  season.  The  demand 
for  this  surplus  may  not  exist  long  after  the  sea- 
son is  passed ;  the  goods  may  be  in  a  very  short 
time  entirely  out  of  fashion.  And  the  con- 
sumer does  not  desire  to  buy  it  as  strongly 
as  he  did  the  same  goods  earlier  in  the  season. 
He  will,  however,  buy  it  at  a  much  lower  price. 
The  producer  cannot  afford  to  keep  the  sur- 
plus. He  must  dispose  of  it  at  some  price,  in 


222    PRINCIPLES  OF  WEALTH  AND  WELFARE 

order  to  make  room  for  products  which  are  in 
higher  demand.  He  now  sells  a  yard  of  a  cer- 
tain cloth  at  12  cents,  which  earlier  in  the 
season  sold  for  20  cents,  and  which  perhaps 
cost  him  at  least  15  cents  per  yard.  He  dumps 
his  surplus  goods,  to  use  a  commercial  phrase. 
While  this  surplus  sells  at  a  price  which  is  be- 
low the  cost  of  production,  the  larger  part  of 
his  product  sold  for  20  cents,  at  a  price  con- 
siderably above  the  cost  of  production.  This 
charge  has  very  frequently  been  brought  against 
the  monopoly  producer,  of  dumping  his  surplus 
goods  upon  Europe,  of  selling  to  Europeans  at 
a  price  much  lower  than  that  which  the  Ameri- 
can consumer  pays.  That  the  monopoly  pro- 
ducer dumps  some  of  his  products,  there  is  no 
doubt  whatever,  but  the  competitive  producer 
also  does  the  very  same  thing.  As  a  matter 
of  business,  they  both  must  of  necessity  do  this. 
The  dumping  is,  however,  as  a  rule,  after  the 
season  is  over,  or  almost  over,  and  the  Ameri- 
can consumer,  as  well  as  the  European,  receives 
the  benefits  of  reduced  prices. 

Increase  in  Demand  ;  Market  Price. —  Under 
the  head  of  consumption,  we  have  spoken  of  the 
general  relations  which  the  consumer's  demand 
bears  to  the  price  of  goods.  It  is  now  necessary 
for  us  to  consider  this  phase  of  the  market  some- 
what more  in  detail  and  from  the  point  of  view 


DEMAND  AND  SUPPLY  223 

of  the  supply  of  the  goods,  as  well  as  of  the 
demand  for  them.  In  a  general  way  we  may 
say  that  an  increase  in  the  demand  for  a  prod- 
uct causes  an  increase  in  its  market  price.  By 
way  of  illustration,  let  us  examine  the  effect  of  a 
25  per  cent  increase  in  the  demand  for  a  goods. 
If  the  goods  can  be  produced  at  a  uniform  or 
constant  cost — at  the  same  cost  per  unit  of  goods 
irrespective  of  the  number  of  units  produced  — 
an  increase  in  the  demand  of  25  per  cent  will 
cause  a  corresponding  increase  in  the  price  of 
the  goods,  unless  the  supply  of  the  goods  should 
at  the  same  time  be  increased.  If  the  25  per  cent 
increase  in  the  demand  is  for  a  goods  which  is 
produced  at  an  increasing  cost  —  the  more  units 
produced  the  more  it  costs  per  unit  to  produce 
them  —  the  price  will  for  a  time  increase  more 
than  25  per  cent.  A  25  per  cent  increase  in 
the  demand  for  a  goods  which  is  produced  at 
a  decreasing  cost  —  the  more  units  produced  the 
less  the  cost  per  unit  to  produce  them  —  will  for 
the  time  cause  an  increase  in  the  price  of  the 
goods,  but  not  to  the  extent  of  a  25  per  cent 
increase.  But  all  of  these  statements  assume 
that  the  increase  in  the  demand  is  sudden  and 
that  there  is  for  the  time  no  increase  in  the 
supply  of  the  goods. 

Increase  in  Demand  and  Supply;   Market  Price. 
—  This    assumption     is,    however,    for    most 


224     PRINCIPLES  OF  WEALTH  AND  WELFARE 

products,  quite  imaginary.  As  a  rule  the  in- 
crease in  the  demand  for  a  goods  is  gradual,  not 
very  sudden.  And  there  is  also  an  increase  in 
the  supply  of  the  goods,  if  not  at  the  very  same 
time  with  the  increase  in  the  demand  for  it,  cer- 
tainly within  a  short  period.  For  almost  every 
product  an  increase  in  the  demand  not  only 
causes  an  increase  in  the  price  of  it,  but  also 
causes  an  increase  in  its  supply;  and  the  increase 
in  its  supply  tends  to  bring  its  price  downward. 
The  first  effect,  then,  of  a  normal  increase  in 
the  demand  for  a  goods  is  an  increase  in  the 
price  of  it,  and  the  increase  in  its  price  causes 
a  greater  quantity  of  the  goods  to  be  produced 
sooner  or  later.  An  abnormal  increase  in  the 
demand  for  a  product,  or  a  demand  which  is  of 
but  a  few  days'  duration,  will  cause  an  increase 
in  the  price  of  the  product,  but  it  may  not  cause 
an  increase  in  its  supply.  If  the  increase  in 
the  demand  is  of  but  a  short  duration,  there 
can  be  little  increase  in  the  supply,  though  the 
market  price  for  the  time  does  increase.  It  re- 
quires time,  in  some  cases  only  a  few  days,  while 
in  others  many  months,  in  which  to  increase  the 
supply  of  goods. 

Let  us  illustrate  this  point.  An  increase  in 
the  demand  for  raw  cotton  fiber,  which  continues 
throughout  the  larger  part  of  the  season,  causes 
a  normal  increase  in  its  price.  The  farmer  will 


DEMAND  AND  SUPPLY  225 

make  serious  attempts  during  the  following 
season  to  increase  its  supply.  Whether  he  can, 
during  the  next  season,  produce  a  greater  quan- 
tity of  cotton  depends  not  only  upon  his  own 
attempts,  but  also  upon  the  condition  of  the 
other  agents  of  production,  and  upon  whether 
the  forces  of  nature  are  favorable  to  him.  An 
increase  in  the  demand  for  peaches  causes  an 
increase  in  their  price.  The  farmer  immedi- 
ately plants  more  trees,  but  before  he  can  finally 
bring  about  an  increase  in  the  supply  of  peaches 
several  years  must  have  passed.  While  it  re- 
quires at  least  one  year  for  an  increase  in  the 
supply  of  cotton  fiber,  and  from  four  to  six  years 
for  an  increase  in  the  supply  of  peaches,  there 
are  other  products  an  increase  in  the  supply  of 
which  requires  but  a  few  days  or  a  few  weeks. 

But  whether  to  bring  forth  an  increase  in 
the  supply  of  products  requires  many  years  or 
only  a  few  days,  an  increase  in  the  supply  in 
the  main  follows  an  increase  in  the  price.  The 
general  tendency  or  law  may,  therefore,  be 
stated,  as  follows :  an  increase  in  the  demand 
causes  an  increase  in  the  market  price;  an  in- 
crease in  the  market  price  causes  an  increase  in 
the  supply  of  the  goods;  an  increase  in  the  sup- 
ply causes  a  decrease  in  the  price.  But  if  the 
demand  remains  the  same  while  the  supply  of  a 
goods  increases,  the  price  decreases,  and  a 


226    PRINCIPLES  OF  WEALTH  AND  WELFARE 

decrease  in  the  price  in  turn  causes  a  decrease  in 
the  supply.  Demand  and  supply  always  tend, 
therefore,  to  balance  each  other,  though  in  this 
tendency  the  scale  bar  tips  up  and  down  many 
a  time  before  it  reaches  the  point  of  balance  or 
equilibrium.  Demand  and  supply  are,  then,  the 
great  master  forces  of  the  market  At  the  point 
where  the  consumer  and  the  producer  come  to 
an  agreement,  there  the  fundamental  and  vital 
forces  of  demand  and  supply  come  to  an  equi- 
librium. And  market  prices  are  in  the  main 
established  and  regulated  by  these  great  forces, 
and  throughout  all  their  fluctuations  these 
forces  are  their  chief  guides.  The  manipulator 
and  gambler  in  market  prices  may  for  the  mo- 
ment feel  their  own  importance,  but  fortunately 
for  the  masses  of  men  these  must,  too,  yield  to  the 
masters  of  all. 

QUESTIONS 

(1)  What  does  the  consumer  have  to  do  in  fixing  the 
market  price  of  cotton,  corn,  houses,  railway  services  ? 

(2)  What  does   the   producer  have  to  do  in  fixing  the 
market  price  of  these  goods? 

(3)  Is  the  price  of  gold  ever  regulated  by  a  local  market  ? 

(4)  How  far  does  the  cost  of  growing  cotton  regulate  its 
market  price? 

(5)  The  market  price  of  cotton  is  during  one  year  about 
9  cents  per  pound.   It  is  during  another  year  about  1 2  cents. 
Why  the  difference  ? 

(6)  Are  market  prices  of  great  importance  to  the  con- 
sumer and  the  producer? 


SECTION    IV 

THE   PRODUCTION   AND   DISTRIBUTION   OF 
WEALTH  —  WELFARE 

CHAPTER   I 

DISTRIBUTION  I     ITS    NATURE   AND    STANDARD 

The  Relation  of  Distribution  to  Production. — 

As  we  have  already  said,  there  are  only  two  sets 
of  human  forces  at  work  in  all  economic  life, — 
those  of  the  consumer  and  those  of  the  pro- 
ducer. These  two  sets  of  human  forces  come 
together  in  the  market,  and  their  resultant  is  a 
market  value.  This  value,  which  is  always  ex- 
pressed in  terms  of  a  price,  is  the  mental  meet- 
ing point  of  all  the  forces  and  aspects  of  the 
consumption  and  production  of  wealth.  How 
much  of  this  value  or  price  belongs  to  each  of 
the  different  agents  which  together  produce  the 
goods?  As  we  have  seen,  every  product  or 
form  of  goods  is  the  resultant  of  labor,  land, 
capital,  and  business  management,  working  to- 
gether under  the  state's  protection  and  assist- 
ance. How  much  of  each  market  price  shall 
go  to  labor,  land,  capital,  business  management, 

227 


228    PRINCIPLES  OF  WEALTH  AND  WELFARE 

and  the  state  ?  This  is  the  question,  and  it  is 
fundamentally  and  vitally  important.  There  is 
no  question  in  the  whole  economic  realm  of 
greater  importance.  And  it  is  the  great  task  of 
distribution  to  answer  it.  The  work  of  pro- 
duction is  to  build  up  products  piece  by  piece, 
utility  by  utility,  until  they  possess  as  much 
value  or  as  many  utilities  as  the  consumer  needs 
and  demands.  The  task  of  the  distribution  of 
wealth  is  to  analyze  each  product  and  to  find 
out  what  part,  what  utilities,  each  agent  of  pro- 
duction has  contributed.  But  is  there  not  a 
key  which  will  unlock  all  of  the  chambers  of 
distribution  ? 

Value,  the  Key  of  Distribution  as  well  as  of  Con- 
sumption and  Production.  —  It  is  value  that  is 
the  key  to  all  the  forces  of  the  consumption  and 
production  of  wealth.  Is  it  not  also  the  key  to 
its  distribution  ?  Yes,  as  we  understand  it,  value 
is  the  key  to  all  the  forces  of  the  distribution 
of  wealth;  it  is  at  least  the  ideal  according  to 
which  distribution  is  ever  at  work.  We  mean 
that,  for  the  most  part,  labor,  land,  capital,  and 
business  management,  each  receives  of  every 
product  the  part  which  it  produces,  or  its  equiva- 
lent. We  mean  that,  out  of  every  market  price, 
each  agent  receives,  or  at  least  tends  to  receive, 
the  exact  value  that  it  adds  to  the  product 
which  sells  for  this  price.  And  this  ideal  is 


DISTRIBUTION:  ITS  NATURE  AND  STANDARD     229 

always  at  work  in  distribution,  though  often- 
times wealth  is  distributed  among  the  agents 
of  production  seemingly  according  to  a  different 
principle. 

Value  given  for  Value  produced :  the  Standard. — 
Our  ideal  of  the  distribution  of  wealth  is,  that  no 
agent  of  production  should  receive  more  than  it 
actually  produces,  and  that  no  man  should  con- 
sume more  than  he  actually  produces.  Value 
to  whom  or  to  what  value  is  due,  is  most  cer- 
tainly a  standard  based  upon  equity.  This,  of 
course,  means  that  to  the  agent  which  produces 
little  only  little  should  be  given ;  to  the  agent 
which  produces  much,  much  should  be  given. 
And  this  ideal  of  distributing  to  each  agent  of 
production  the  exact  amount  of  wealth  which  it 
produces,  the  exact  value  which  it  adds,  should 
also  be  the  ideal  in  all  aspects  of  human  life, 
whether  economic,  political,  social,  intellectual, 
or  religious.  Our  governmental  and  social  or- 
ganizations, our  schools  and  universities,  our 
churches  and  missions,  —  none  of  these  institu- 
tions have  the  right  to  exist  and  consume  wealth, 
unless  they  produce  conditions  of  wealth  or  wel- 
fare that  are  in  value  at  least  equal  to  that  which 
they  consume. 

As  we  have  already  said,  wealth  is  apparently 
at  times  distributed  according  to  a  standard 
which  is  different  from  the  one  we  have  adopted 


230    PRINCIPLES  OF  WEALTH  AND  WELFARE 

as  our  ideal.  Among  husbands,  wives,  and 
children  wealth  is  every  day  seemingly  distrib- 
uted not  according  to  the  value  added,  but 
according  to  personal  love.  Charity  and  phi- 
lanthropy, as  well  as  family  affection,  also  enter 
into  the  distribution  of  wealth.  The  deformed, 
the  deaf,  the  dumb,  the  blind,  and  the  infirm, 
have  wealth  distributed  to  them  according  to 
the  charity  and  philanthropy  of  individuals, 
cities,  and  states.  Many  men,  therefore,  ap- 
parently live  upon  the  work  of  others  —  in  the 
favor  of  others. 

These  exceptions  to  our  standard  are,  how- 
ever, much  more  apparent  than  real.  Many  chil- 
dren, to  be  sure,  are  consumers  of  wealth,  not 
producers  of  it.  And  they  should,  during  their 
earlier  years,  produce  not  wealth  but  strength 
and  energy  of  body  and  mind.  They  should 
produce  that  physical  and  mental  strength  which 
will  in  the  future  possess  great  productive  power 
not  only  for  themselves  but  also  for  their 
parents.  While  during  their  childhood  they  are 
for  the  most  part  not  direct  producers  of  wealth, 
still  in  many  cases  they  stimulate  others  to 
greater  and  greater  economic  activity  and  ef- 
forts. The  infirm  and  the  deformed  also  are 
consumers,  not  producers  of  products.  Their 
fellow-beings  must  support  them.  Their  fellow- 
beings  must  produce  for  them  that  wealth  which 


DISTRIBUTION:  ITS  NATURE  AND  STANDARD     23! 

they  consume.  But  their  infirmities  are  not  so 
infrequently  the  results  of  overwork  on  their 
own  part  or  that  of  their  parents,  and,  therefore, 
a  part  of  that  which  they  consume  during  their 
infirmity  is  in  reality  what  they  themselves  have 
produced  during  their  better  days.  Though 
both  the  child  and  the  infirm  consume  more 
wealth  than  they  produce,  even  yet  they  may 
be  producers  of  human  welfare.  They  have 
much  power  in  creating  and  fostering  the  spirit 
of  unselfishness,  of  kindness,  and  of  honesty, 
and  this  spirit  is  truly  a  guardian  angel  of 
our  welfare.  The  support  and  care  of  the 
weak  and  deformed  have  taught  us  many  ideals 
and  standards  of  conduct  in  the  economic 
realm. 

The  Value  or  Productivity  Theory  of  Distribution. 
— To  find  out  exactly  how  much  each  agent  pro- 
duces is  very  difficult.  To  know  exactly  how 
much  of  every  product  has  been  produced  by 
each  agent,  and  how  much  of  every  market  price 
should  be  distributed  to  each  agent,  is  no  easy 
task.  The  business  manager  assumes  the  task  of 
producing  a  certain  form  of  goods.  He  hires 
labor,  land,  and  capital.  These  three  agents,  to- 
gether with  his  own  management,  produce  the 
required  form,  say  a  yard  of  cotton  cloth  which 
can  be  delivered  on  the  market  at  50  cents.  Each 
agent  has  produced  a  part  of  this  cloth  — has 


232    PRINCIPLES  OF  WEALTH  AND  WELFARE 

added  value  to  it.  But  exactly  how  much  value 
each  agent  has  added,  how  much  of  the  50  cents 
belongs  to  each  agent,  this  is  the  great  and 
vital  question. 

According  to  our  standard  of  distribution, 
labor  should  have  of  this  value  just  as  much  as 
it  has  produced,  and  likewise  land,  capital,  and 
business  management  should  receive  of  this 
value  the  exact  part  which  they  each  have  added. 
The  fact  that  the  business  manager  receives  the 
50  cents  from  the  consumer  makes  him  the 
chief  agent  in  its  distribution.  How  much  of 
this  price  will  he  pay  to  labor,  to  land,  and  to 
capital  ?  As  a  matter  of  fact,  he  has  already 
fixed  by  contract  the  pay  of  each  of  these  agents, 
and,  therefore,  for  the  time  their  pay  is  regulated 
by  contract.  But  what  ultimately  regulates  his 
contract  with  each  of  these  agents  ?  Suppose 
the  manager  has  contracted  to  pay  labor  15  cents 
for  its  part  of  the  yard  of  cotton  cloth,  land  15 
cents,  and  capital  15  cents,  and  he  values  his 
own  management  at  10  cents.1  The  cloth,  there- 
fore, costs  him  55  cents  per  yard,  though  at  the 
time  he  is  compelled  to  sell  it  for  50  cents.  Who 
bears  the  loss  ?  The  manager  is  compelled  by 
his  contract  to  pay  45  cents  to  the  other  agents. 
This  leaves  him  only  5  cents  for  his  own  man- 

1  These  figures  are  not  at  all  the  actual  ones.  They  are  merely 
taken  for  the  purpose  of  illustration. 


DISTRIBUTION:  ITS  NATURE  AND  STANDARD     233 

agement,  though  this  is  worth  at  least  10  cents. 
The  manager  must  bear  the  loss  on  this  particu- 
lar yard  of  cloth.  He  cannot  possibly  shift  it  to 
the  other  agents.  Before  contracting  with  the 
agents  of  production  to  produce  another  yard  of 
cotton  cloth  which  sells  on  the  market  for  50 
cents,  he  will  force  them,  if  he  can,  to  accept  less 
value  for  their  part,  say  13  cents  each.  This 
second  yard  sells  for  50  cents.  And  after  the 
manager  pays  the  other  agents  13  cents  each,  he 
has  left  for  his  own  management  10  cents,  and 
also  i  cent  for  profits. 

The  Product  of  Each  Agent  figured  on  the  Mar- 
gin: the  Standard  of  Pay. — Why  will  the  busi- 
ness manager  make  a  contract  with  the  other 
agents  to  pay  them  a  certain  value  for  each 
product  made?  He  agrees  to  pay  labor  15  cents 
or  1 3  cents  for  its  part  of  the  product,  because  he 
believes  that  labor  creates  in  cotton  cloth  at  least 
1 5  cents  or  1 3  cents  of  value.  The  experience 
of  his  fellow-managers,  as  well  as  of  himself, 
makes  it  possible  for  him  to  calculate  with  con- 
siderable accuracy  how  much  productive  power 
each  of  these  agents  has  for  him.  The  managers 
experiment  with  the  number  of  units  of  each 
agent  which  they  can  employ  to  greatest  advan- 
tage. They  figure  on  the  margin  of  their  produc- 
tivity. Shall  they  pay  a  laborer  1 5  cents  a  yard 
or  shall  they  pay  him  14  cents  or  16  cents  ?  The 


234    PRINCIPLES  OF  WEALTH  AND  WELFARE 

margin  of  i  cent  per  yard  is  of  very  great  im- 
portance to  both  the  manager  and  the  laborer.  It 
is  also  of  vital  importance  to  the  land  and  capital 
which  he  employs  in  producing  this  yard  of  cloth. 
The  amount  which  he  will  pay  either  of  these  is 
figured  on  the  margin  of  their  productive  power. 

Agents  paid  in  Proportion  to  their  Productive 
Power:  the  Ideal,  though  the  Changes  in  their 
Demand  and  Supply  give  to  the  Employer  a  Point  of 
Advantage.  —  The  fact  that  the  employer  or 
business  manager  is  the  one  who  makes  the  cal- 
culations of  the  productive  power  of  the  other 
agents,  and  the  fact  that  he  is  also  the  chief 
instrument  in  the  actual  distribution  of  wealth, 
give  him  a  point  of  enormous  advantage  over 
the  other  agents.  In  contracting  to  pay  wages  to 
ordinary  laborers,  rent  to  land,  interest  to  capital, 
the  manager  as  a  rule  makes  use  of  his  superior 
and  advantageous  situation.  He  pays  to  these 
agents  the  smallest  value  possible.  He  often- 
times drives  hard  bargains  with  them,  especially 
with  the  ignorant  laborers,  and  not  infrequently 
keeps  for  his  own  management  a  much  larger 
part  of  each  product  than  his  managing  ability 
really  produces. 

This  manager  at  times  not  only  pays  his  own 
managing  ability  much  more  than  it  really  pro- 
duces, but  he  also  receives  the  profits  which 
come  as  a  result  of  the  lack  of  equilibrium  in 


DISTRIBUTION:  ITS  NATURE  AND  STANDARD     235 

the  demand  for  and  the  supply  of  his  products. 
He  must,  however,  bear  the  burden  of  a  loss,  in 
case  he  cannot  sell  his  products  for  a  price  which 
will  fully  cover  the  cost  of  their  production. 
And  all  of  the  profits  do  not  long  remain  in  the 
manager's  possession.  Profits  cause  him  to  at- 
tempt to  produce  a  greater  quantity  of  goods. 
In  order  to  produce  more  goods,  he  must  em- 
ploy a  greater  quantity  of  the  other  agents,  and 
in  order  to  secure  a  greater  quantity  of  these 
agents  he  must,  according  to  the  law  of  demand 
and  supply,  pay  higher  wages,  higher  rent,  and 
higher  interest.  Losses,  on  the  other  hand,  are 
not  all  permanently  borne  by  the  manager. 
Under  such  a  condition  of  production,  he  pro- 
duces a  smaller  quantity  of  goods,  and  conse- 
quently his  demand  for  the  other  agents  is 
smaller  and  their  pay  is  at  a  lower  rate. 

The  employer  or  manager  must,  therefore, 
work  in  accordance  with  the  great  economic 
law  of  demand  and  supply,  which  operates  not 
only  on  the  part  of  the  consumer  of  his  goods 
but  also  on  the  part  of  the  agents  of  their  pro- 
duction. Were  there  no  changes  in  the  demand 
for  and  supply  of  his  goods,  and  were  there  no 
fluctuations  in  the  demand  for  and  supply  of 
the  agents  of  production  of  which  he  must  make 
use,  there  would  of  course  be  no  changes  in  the 
price  at  which  he  sells  his  goods  and  no  changes 


236    PRINCIPLES  OF  WEALTH  AND  WELFARE 

in  the  value  which  he  pays  to  his  agents.  Under 
such  conditions  it  would  be  comparatively  easy 
to  find  out  exactly  what  each  agent  produces. 
Under  such  conditions  the  manager  would  like- 
wise be  compelled  by  great  economic  forces  to 
pay  each  agent  the  exact  value  which  it  adds  to 
every  product.  His  position  of  advantage  would 
not  enable  him  to  obtain  too  great  rewards  for 
his  own  management  and  also  too  great  profits. 
While  such  conditions  are  not  the  actual  ones  in 
a  progressive  community  like  our  own,  still  the 
tendency  is  everywhere  and  at  all  times  toward 
an  equilibrium  in  the  market  of  ordinary  prod- 
ucts, and  also  in  the  market  of  the  agents  of 
their  production.  As  the  ordinary  goods  sell 
for  the  most  part  according  to  their  value,  so 
likewise  the  agents  of  production  sell  for  the 
most  part  according  to  their  value,  according 
to  their  productive  power. 

QUESTIONS 

(1)  What  do  you  mean  by  the  distribution  of  wealth? 

(2)  Is  value  important  in  the  consumption,  production, 
and  distribution  of  wealth  ? 

(3)  Would  you  distribute  to  labor,  land,  capital,  and  busi- 
ness  management,  the  exact  amount  which  each  of  these 
agents  produces? 

(4)  Does  the  distribution  of  wealth  have  much  to  do  with 
your  welfare  ? 


CHAPTER   II 

DISTRIBUTION    OF   WEALTH    AND   WAGES 

Importance  of  Wages.  —  To  the  employer,  as 
well  as  to  the  laborer,  wages  are  most  vitally  im- 
portant. As  labor  is  the  most  vital  problem  in 
the  production  of  wealth,  so  wages  are  the  most 
perplexing  and  difficult  one  in  its  distribution. 
To  find  out  exactly  what  labor  produces  in  every 
product  which  is  sold  on  the  market,  to  find  out 
the  value  which  labor  adds  to  this  product,  and 
to  pay  to  the  laborer  wages  which  exactly  repre- 
sent his  product,  these  are  problems  which  con- 
front every  laborer  and  every  employer.  If  the 
worker  is  not  paid  in  wages  exactly  that  which 
he  produces,  he  is  robbed  of  a  part  of  his  earn- 
ings, and  in  consequence  has  a  smaller  quantity 
of  wealth  for  his  own  consumption ;  and  his  pro- 
ductive power  depends  very  largely  upon  the 
quantity  and  quality  of  the  goods  which  he  con- 
sumes. But  if  the  laborer,  by  one  means  or  an- 
other, obtains  in  wages  more  than  he  produces, 
some  other  laborer  or  agent  of  production  is 
deprived  of  a  part  of  his  earnings,  or  the  con- 
sumer has  to  bear  the  burden,  in  a  higher  price, 
when  he  buys  the  product. 

237 


238    PRINCIPLES  OF  WEALTH  AND  WELFARE 

Wages  regulated  by  the  Inherent  Power  of 
Labor  at  work  under  the  Conditions  of  its  Supply 
and  Demand.  —  As  we  have  already  said,  wages 
are  in  the  main  paid  according  to  the  pro- 
ductive power  or  efficiency  of  the  laborer. 
While  there  are  exceptions  to  this  standard,  still 
these  exceptions  do  not  destroy  the  standard 
itself.  The  employer  pays  for  labor  as  small 
wages  as  he  can,  and  at  times  he  pays  different 
wages  for  the  same  work,  but  the  tendency  every- 
where and  at  all  times  is  to  pay  wages  in  pro- 
portion to  the  product  which  the  laborer  creates. 

This  productive  power  of  the  laborer  depends 
not  only  upon  his  own  strength,  judgment,  and 
ambition,  but  also  upon  the  demand  for  and 
supply  of  labor.  Labor  is  in  fact,  from  many 
points  of  view,  exactly  like  the  ordinary  products 
or  commodities  which  are  daily  bought  and  sold 
in  the  markets.  The  market  price  of  raw  cotton, 
for  instance,  varies  from  time  to  time,  though 
the  inherent  properties  or  qualities  of  the  cot- 
ton fiber  remain  exactly  the  same.  The  market 
price  of  this  commodity,  as  of  all  the  other  com- 
modities, depends  not  only  upon  its  own  inher- 
ent properties,  but  also  upon  the  quantity  of  it 
as  compared  with  the  demand  for  it.  While 
there  are  many  fluctuations  in  the  prices  of  this 
commodity,  its  prices  are  always  regulated  for 
the  most  part  by  its  efficiency  or  value;  and  the 


DISTRIBUTION  OF  WEALTH  AND  WAGES    239 

value  of  every  article  in  the  whole  economic 
realm  is  the  product  of  its  own  qualities  work- 
ing under  the  existing  conditions  of  its  demand 
and  supply.  The  prices  of  labor  —  wages  —  are, 
therefore,  the  results  of  the  inherent  power  of 
labor  at  work  under  the  existing  conditions  of 
its  demand  and  supply. 

Such  a  standard  of  wages  by  no  means  as- 
sumes that  every  laborer  shall  be  paid  the  same 
wages.  It  only  assumes  that  every  laborer  of 
the  same  efficiency  and  under  the  same  condi- 
tions of  the  demand  for  labor  and  its  supply  shall 
receive  the  same  wages.  There  are,  from  the 
point  of  view  of  their  productive  power,  many 
different  grades  of  laborers.  Laborers  differ 
widely  in  their  strength,  energy,  judgment,  and 
ambition.  They  also  work  amid  different  con- 
ditions of  the  supply  of  labor  as  compared  with 
the  demand  for  it.  Two  men  of  the  same  in- 
herent productive  power  live  in  different  eco- 
nomic locations.  One  receives  in  daily  wages 
$  i ,  while  the  other  for  the  same  work  receives 
$1.50.  The  difference  in  their  earnings  comes 
in  this  case  from  the  differences  of  their  eco- 
nomic situations.  And  in  the  same  economic 
situation  we,  as  a  rule,  have  many  grades  of 
labor  and  consequently  many  grades  of  wages. 
One  laborer  in  New  York  City  receives  $2  a 
day,  another  $3,  and  another  $6. 


240    PRINCIPLES  OF  WEALTH  AND  WELFARE 

According  to  our  standard  of  wages,  every 
laborer  of  the  same  grade  of  efficiency  and 
working  in  the  same  economic  situation  should 
receive  the  same  wages.  This  standard  is  be- 
yond a  doubt  the  ideal  in  the  payment  of  wages, 
and  it  is  more  or  less  fully  realized  in  the  actual 
distribution  of  wealth  into  labor.  The  laborers 
who  are  of  the  same  grade,  and  who  are  at  work 
under  the  same  conditions  of  demand  and  sup- 
ply, are  competing  with  each  other,  and  the 
natural  tendency  for  them  to  receive  the  identi- 
cally same  wages  is  very  strong.  The  compe- 
tition between  one  grade  of  labor  and  another 
grade  is,  however,  very  slight ;  the  man  who  can 
earn  $6  a  day  has  little,  if  any,  competition  to 
meet  on  the  part  of  the  man  whose  productive 
power  is  measured  by  $2  or  $3.  Let  us  consider 
an  illustration.  The  competition  between  the 
cotton  spinners  of  Massachusetts  and  the  car- 
penters, brick  masons,  or  electricians,  of  the  same 
location  is  slight,  though  within  each  group 
of  these  workers  there  is  much  competition, 
and  wages  tend  to  the  same  level.  The  cotton 
spinner  in  the  South  Carolina  mills  receives 
10  cents  a  day  for  each  machine  he  operates. 
The  spinner  in  the  Rhode  Island  mills  receives 
1 2  cents  per  day  for  each  machine.  Let  us 
assume  that  they  each  operate  the  same  num- 
ber of  machines.  Their  own  energy  and  skill 


DISTRIBUTION  OF  WEALTH  AND  WAGES    241 

are  then  the  same.  The  difference  in  their  wages 
is  then  determined  by  the  difference  in  the 
demand  for  and  supply  of  labor  in  the  two  loca- 
tions. The  supply  of  labor  in  Rhode  Island,  as 
compared  with  the  demand  for  it,  is  smaller,  and 
consequently  for  the  same  work  higher  wages 
are  paid  in  Rhode  Island  than  in  South  Caro- 
lina. 

But  why  does  labor  not  migrate  from  South 
Carolina  to  Rhode  Island,  in  order  to  receive 
the  higher  wages?  Why  does  it  not  move 
from  a  place  where  the  demand  for  it  is  smaller 
to  a  place  where  the  demand  for  it  is  greater  ? 
Love  of  home,  fear  of  failure  in  the  new  situ- 
ation, and  indifference  to  higher  wages  in  part 
explain  the  lack  of  movement  from  one  place  to 
another.  The  chief  reason  for  the  failure  to 
move  is,  however,  the  greater  cost  of  living. 
While  wages  are  higher  in  Rhode  Island,  the 
cost  of  living  there  is  also  higher.  The  cost  of 
producing  labor  services,  as  of  producing  all 
other  commodities,  tends  to  regulate  the  price 
of  labor,  or  wages.  Ten  cents  in  South  Carolina 
will  bring  the  laborer  at  least  as  much  comfort 
as  will  1 2  cents  in  New  England. 

We  have  in  fact  a  great  variety  of  wages. 
We  have  difference  in  wages  because  of  dif- 
ference in  skill,  because  of  difference  in  the 
inherent  power  of  labor,  because  of  difference 


242    PRINCIPLES  OF  WEALTH  AND  WELFARE 

in  the  supply  of  this  labor  as  compared  with  the 
demand  for  it,  and  finally  because  of  difference 
in  the  cost  of  producing  labor  services  in  the 
different  groups  of  work  and  in  the  different 
locations  of  these  groups.  But  throughout  our 
great  variety  of  wages  runs  the  idea  of  the 
productivity  of  labor.  The  conditions  of  de- 
mand and  supply  certainly  have  a  profound 
influence  over  wages,  but  the  most  vital  force 
in  their  regulation  is  the  inherent  productive 
power  of  the  laborer. 

The  Peculiarities  of  Labor  as  a  Commodity; 
Wages.  —  We  have  already  said  that  labor  may 
be  considered  in  the  same  general  way  as  all 
the  other  commodities,  which  are  produced  and 
consumed,  and  that  its  price  is  regulated  by  its 
inherent  properties  and  by  the  conditions  of  its 
demand  and  supply.  Labor  as  a  commodity 
has,  however,  certain  peculiarities  which  differ- 
entiate it  from  the  other  commodities  that  are 
on  the  market.  And  we  shall  treat  of  these 
peculiarities  in  the  following  paragraphs. 

(i)  When  labor  is  bought  or  sold,  it  is  the  service 
of  the  laborer,  not  his  person,  which  is  exchanged. 
The  personal  element  exists  in  this  kind  of  an 
exchange  in  both  the  buyer  and  the  commodity 
bought,  and  this  personal  element  is  always  a 
most  important  one.  Labor  service  is  truly  a 
commodity,  but  it  cannot  be  dealt  with  in  ex- 


DISTRIBUTION  OF  WEALTH  AND  WAGES    243 

actly  the  same  manner  and  with  the  same  spirit 
as  can  the  ordinary  commodities  of  consump- 
tion, such  as  a  ton  of  coal  or  a  pound  of  cotton. 
The  labor  commodity  always  possesses,  even 
in  the  case  of  the  despised  slave,  a  personal 
individuality  which  is  not  to  be  found  in  the 
other  commodities ;  and  this  is  true  of  both 
common  labor  and  of  managing  labor.  Capital 
and  land,  as  well  as  all  the  many  varieties  of 
the  commodities  of  ordinary  consumption,  are 
totally  lacking  in  this  personal  individuality. 
The  personal  element  in  the  wage  problem  is, 
therefore,  a  most  vital  one,  while  in  the  prices 
of  other  commodities  there  is  no  such  a  factor. 
(2)  As  a  result  of  this  personal  element,  labor 
service  cannot  be  sold  except  in  connection  with 
the  laborer  himself  .  The  laborer  cannot,  there- 
fore, live  in  one  location  and  sell  his  services  in 
a  far-away  location ;  he  must  migrate  from  field 
to  field  before  he  can  find  a  greater  market  for 
his  labor  commodity.  The  American  wheat 
grower  can,  on  the  other  hand,  sell  his  products 
in  any  part  of  the  world  without  himself  moving 
from  place  to  place.  All  the  ordinary  com- 
modities tend  to  compete  with  each  other  the 
world  over,  on  a  great  international  market. 
But  for  labor,  and  for  land,  as  we  shall  later  see, 
there  is  a  much  greater  lack  of  mobility.  The 
prices  of  labor  services  are  in  consequence 


244    PRINCIPLES  OF  WEALTH  AND  WELFARE 

largely  regulated  by  the  forces  of  a  local  market, 
not  by  those  of  a  national  or  international  one. 
As  we  have  already  seen,  the  wages  in  New 
England  for  the  same  grade  of  efficiency  are 
higher  than  those  in  the  Southern  states.  Even 
within  the  New  England  states  there  are  many 
different  local  markets  for  labor.  But  let  us 
consider  two  more  illustrations.  In  Japan  labor 
is  abundant  in  proportion  to  the  demand  for  it, 
and  wages  are  consequently  low ;  they  are  gov- 
erned almost  entirely  by  the  forces  of  the  differ- 
ent Japanese  labor  markets.  In  the  western 
sections  of  our  own  country,  on  the  other  hand, 
labor  is  much  less  abundant  than  it  is  in  Japan, 
and  wages  are  much  higher.  While  some  labor 
comes  from  Japan  to  our  Western  coast,  still  it 
is  as  yet  in  comparatively  small  quantities. 

(3)  An  increase  in  the  demand  for  labor  ser- 
vices is  by  no  means  immediately  followed  by  a 
corresponding  increase  in  their  supply.  If  labor 
were  very  mobile,  an  increase  in  the  demand 
for  it  in  one  place  or  group  of  work  would  be 
immediately  followed  by  an  increase  in  the 
supply  of  it  in  that  place  or  group.  It  would 
migrate  from  a  place  of  smaller  demand  and 
wages  to  one  of  greater  demand  and  wages. 
Labor  is  not,  however,  readily  mobile;  the 
migration  of  labor  services  is  in  actual  fact  com- 
paratively slow.  And  an  increase  in  the  supply 


DISTRIBUTION  OF  WEALTH  AND  WAGES    245 

of  labor  by  means  of  the  excess  of  births  over 
deaths  is  still  slower.  In  fact  it  requires  from 
fifteen  to  twenty-five  years  in  which  to  rear  a 
laborer.  But  it  requires  as  a  rule  only  a  short 
time  in  which  to  produce  the  other  commodities. 
An  increase  in  the  supply  of  these  commodities 
follows  within  a  short  time  the  increase  in  the 
demand  for  them.  An  increase  in  the  demand 
for  corn,  for  instance,  is  usually  followed  by  an 
increase  in  its  supply  within  one  season. 

Supply  and  Demand  of  Labor ;  Wages.  — 
While  to  increase  the  supply  of  labor  by  an 
increase  in  the  birth  rate  and  a  decrease  in  the 
death  rate  is  slow,  still  higher  wages  mean  in 
the  long  run  an  increase  in  the  supply  of  labor. 
Higher  wages  tend  in  the  main  to  bring  into 
the  world  a  greater  number  of  children.  Higher 
wages  also  tend  to  cause  a  decrease  in  the 
death  rate,  for  under  such  conditions  children 
are  cared  for  in  a  more  efficient  way.  The 
reverse  is,  of  course,  equally  true ;  a  decrease  in 
wages  tends  to  decrease  the  supply  of  labor. 
We  have  already  seen  that  an  increase  in  the 
demand  for  ordinaiy  products  creates  a  higher 
price,  and  a  higher  price  causes  a  greater  supply 
of  these  goods  to  be  produced.  The  greater 
supply,  however,  tends  to  bring  the  price  down- 
ward. And  this  twofold  tendency  is  for  the 
most  part  true  of  labor  also.  An  increase  in 


246    PRINCIPLES  OF  WEALTH  AND  WELFARE 

the  demand  for  it  causes  higher  wages,  higher 
wages  create  a  greater  supply  of  it,  and  the 
greater  supply  tends  to  bring  the  wages  down- 
ward. If,  however,  the  demand  for  the  other 
commodities  and  for  labor  continues  to  increase, 
an  increase  in  the  supply  of  them,  while  it  tends 
to  cause  a  decrease,  will  not  in  actual  fact  bring 
about  much  decrease  in  their  prices  and  wages, 
if  indeed  any.  A  constant  and  continuous  in- 
crease in  the  demand  will  cause  such  an  in- 
crease in  prices  and  wages,  unless  the  increase 
in  the  supply  is  as  great  as  that  in  the  demand. 
There  is,  therefore,  a  vitally  close  connection 
between  wages  and  the  supply  of  labor ;  popu- 
lation is  indeed  subject  to  the  great  law  of  the 
economic  realm,  to  the  law  of  supply  and  de- 
mand. Its  size  has  a  profound  influence  upon 
wages,  and  wages  in  turn  influence  its  size. 

This  law  is  universal.  The  forces  of  demand 
and  supply  are  always  and  everywhere  at  work. 
They  are  ever  at  work  in  the  market  of  all 
products  and  commodities ;  they  are  at  work  in 
the  market  of  labor,  land,  capital,  and  business 
management,  as  well  as  that  of  all  the  countless 
products  of  these  agents.  They  are  at  work  in 
the  wages  of  the  laborer  who  toils  in  China,  as 
well  as  in  England  and  the  United  States. 

As  we  have  seen,  wages  in  China  have 
become  lower  as  population  has  increased,  be- 


DISTRIBUTION  OF  WEALTH  AND  WAGES     247 

cause  the  demand  for  labor  has  not  grown  as 
rapidly  as  has  the  supply  of  it.  In  the  United 
States,  on  the  other  hand,  population  has  had 
a  very  marvelous  increase,  but  the  demand  for 
labor  has  had  a  still  greater  increase,  and  in 
consequence  wages  have  become  greater  and 
greater.  In  China,  while  the  individual  laborer 
may  possess  much  energy  and  skill,  he  has  but 
little  of  the  other  agents  of  production  with 
which  to  work;  the  demand  for  his  service  is  very 
small.  The  same  Chinese  laborer  at  work  in 
our  own  country,  where  economic  society  offers 
him  the  other  agents  in  great  abundance,  where 
the  production  of  wealth  demands  his  services, 
and  where  the  supply  of  labor  as  compared  with 
the  demand  for  it  is  small,  here  his  wages  are 
much  higher. 

Efficiency  of  Labor ;  Wages.  —  We  have  seen 
that  wages  are  regulated  by  the  laborer's  energy 
and  skill  at  work  under  the  conditions  of  the 
supply  of  his  services  and  the  demand  for 
them.  And  these  inherent  properties  of  the 
individual  laborer  are  in  turn  profoundly  in- 
fluenced by  the  price  at  which  he  sells  his  ser- 
vices. The  quality  of  any  ordinary  product  is, 
as  we  know,  largely  influenced  by  the  price  at 
which  it  sells  on  the  market.  A  small  price,  as 
a  rule,  means  a  poor  quality.  Six  cents  a  yard 
for  cotton  cloth  means  of  necessity  a  coarse 


248    PRINCIPLES  OF  WEALTH  AND  WELFARE 

quality  of  fabric.  The  quality  of  labor,  as  that 
of  all  the  other  commodities,  is  also  largely 
dependent  upon  the  price  for  which  it  sells. 
The  worker  who  receives  in  wages  $6  a  day 
can  afford  to  do  a  high  grade  of  work,  while 
the  worker  who  receives  but  50  cents  a  day 
cannot  afford  to  put  forth  a  high  grade  of 
service.  The  relation  between  efficiency  and 
wages  and  between  wages  and  efficiency  of 
labor  is,  therefore,  very  close  and  vital.  It  is, 
then,  very  necessary  that  the  laborer  receive  in 
wages  his  full  earnings.  It  is  necessary  that 
he  be  paid  in  full  for  the  product  which  he 
produces,  not  only  for  the  sake  of  the  worker 
himself  but  also  for  the  sake  of  the  permanent 
productive  power  of  the  whole  community.  The 
employer  of  labor,  who  by  one  means  or  another, 
is  able  to  keep  for  himself  a  part  of  that  which 
labor  produces,  who  does  not  pay  in  wages  for 
full  value  received,  harms  not  only  the  individ- 
ual laborer  to  whom  he  pays  such  wages,  but 
also  the  productive  power  of  the  very  service 
which  he  himself  buys.  Such  an  employer  in 
the  long  run  surfers,  though  for  the  time  he 
seems  to  gain. 

A  solution  of  our  great  and  perplexing  wage 
problem  upon  any  other  principle  than  that  of 
the  efficiency  of  labor  at  work  under  the  exist- 
ing conditions  of  its  demand  and  supply,  will 


DISTRIBUTION  OF  WEALTH  AND  WAGES    249 

cause  a  decrease  in  the  welfare  not  only  of  the 
individual  laborer  but  also  of  his  employer  and 
the  whole  public.  A  solution  upon  any  other 
principle  can  never  be  permanent.  It  does  not 
recognize  the  universal  principle  of  right  and 
justice.  The  employer  who  by  means  of  his 
advantageous  position  over  labor  does  not  pay 
wages  upon  the  ground  of  the  product  made 
by  the  laborer,  who  does  not  pay  for  full  value 
received,  is  to  this  extent  a  robber  of  labor ;  and 
as  a  robber  he  must  sooner  or  later  pay  the 
penalties.  On  the  other  hand,  if  the  laborer 
by  means  of  unions,  boycotts,  and  strikes  col- 
lects in  wages  more  than  he  produces,  more 
than  full  value  given,  he  also  is  a  robber. 

QUESTIONS 

(1)  If  a  man's  wages  are   doubled,  is   his  welfare   also 
doubled  ? 

(2)  A  man  receives  in  daily  wages  $2  ;  his  friend  receives 
only  $i.     Why  the  difference?    What  regulates  the  wages  of 
each? 

(3)  Is  the  price  of  labor  regulated  in  the  same  way  as 
are  the  prices  of  the  ordinary  commodities  —  as,  for  instance, 
cotton  or  corn  ? 

(4)  What  do  strength  and  skill  have  to  do  with  wages? 

(5)  Labor  is  abundant.    Will  its  wages  be  high? 


CHAPTER   III 

DISTRIBUTION     OF    WEALTH     AND   WAGES  ;   TRADES 
UNIONS    AND    FACTORY    ACTS 

Importance  of  Combination  to  Labor.  —  That 
the  principle  of  combination  possesses  great 
productive  power  for  labor,  we  have  already 
shown.  And  this  principle  has  been  put  into 
successful  operation.  The  conviction  that  by 
uniting  with  each  other  individual  laborers  may 
make  themselves  much  more  efficient,  and  es- 
pecially much  more  influential  on  the  labor 
market,  has  now  become  exceedingly  strong 
and  active.  The  present  problem  of  wages  is, 
therefore,  not  simply  one  which  the  individual 
employer  and  the  individual  laborer  can  solve. 
It  is  more  largely  a  problem  of  the  corporation 
manager  and  the  trade  or  labor  union  manager. 
Combination  of  laborers,  though  a  working 
principle  of  but  two  centuries  of  age,  is  never- 
theless now  a  great  and  vital  economic,  political, 
and  social  force.  Combination  in  the  man- 
agement of  a  business  is  likewise  both  a  new 
and  a  very  powerful  institution.  Both  of  these 
organizations  have,  as  we  have  seen,  a  great  and 

250 


WAGES:  TRADES  UNIONS  AND  FACTORY  ACTS    251 

fundamental  influence  in  the  production  of 
wealth.  They  have  even  greater  influence  in 
its  distribution.  It  is  our  purpose  in  this  con- 
nection to  discuss  some  of  the  effects  of  combi- 
nation among  the  laborers,  both  upon  their 
wages  and  upon  their  general  treatment  at  the 
hands  of  the  employer.  Later  we  shall  consider 
the  effects  of  combination  in  business  manage- 
ment upon  the  pay  of  management. 

Unions :  their  Extent  in  England  and  the  United 
States  Compared.  —  Trades  unions,  as  these  or- 
ganizations of  laborers  or  employees  are  called, 
have  not  by  any  means  developed  to  the  same 
extent  in  many  different  countries.  In  England, 
where  they  had  their  beginning,  and  where  in- 
dustrial life  has  had  its  greatest  and  highest 
development,  their  growth  has  been  greatest. 
Great  Britain,  with  only  about  one  half  of  the 
population  of  the  United  States,  has  practically 
as  many  members  in  her  trades  unions  as  we 
have.  Her  unions  have  a  membership  of  about 
two  millions.  But  when  our  economic  life  is 
analyzed  and  compared  with  that  of  England,  it 
is  found  that  we  have  developed  the  higher 
forms  of  production  to  only  about  one  half  of 
the  extent  that  England  has.  We  are  still  very 
largely  agricultural,  and  unions  do  not  and 
really  cannot  exist  among  the  laborers  of  our 
farms  which  are  scattered  far  and  wide.  More 


252    PRINCIPLES  OF  WEALTH  AND  WELFARE 

than  three  fourths  of  our  vast  area  still  belongs 
to  that  group  of  production  which  is  called 
agriculture.  But  the  people  of  Great  Britain 
are  largely  at  work  in  that  group  of  production 
which  we  call  manufacture.  From  this  point 
of  view,  trades  unions  have  developed  almost  to 
the  same  degree  in  both  countries. 

Unions:  their  Purposes  and  Methods.  —  Under 
the  head  of  labor  as  a  producing  agent,  we  have 
seen  that  the  productive  power  of  labor  depends 
not  only  upon  its  supply  and  the  demand  for 
it,  but  also  upon  the  individual's  capacity  and 
the  method  of  employing  his  capacity.  The 
union  method  is  to  employ  this  capacity  in  such 
a  way  as  to  increase  both  its  inherent  power 
and  its  ability  to  sell  itself  on  the  labor  market. 
And  this  method  is  adopted  for  the  most  part  by 
men  of  ordinary  talent.  One  individual  laborer 
of  this  class  is  profoundly  ignorant  of  the 
other  laborers  of  the  same  class,  and  with  whom 
he  is  always  competing  on  the  labor  market. 
He  also  knows  exceedingly  little  of  the  great 
forces  and  problems  of  production.  On  the 
other  hand,  his  whole  economic  situation  and 
his  ability  to  market  his  labor  are  usually  very 
well  known  to  the  employer.  This  employer  is 
oftentimes  eager  enough  to  take  advantage 
of  the  individual  laborer  of  this  class  of  skill 
and  to  pay  him,  really  to  compel  him  to  accept, 


WAGES:  TRADES  UNIONS  AND  FACTORY  ACTS    253 

wages  which  are  not  at  all  an  equivalent  of  the 
value  he  creates.  The  purposes  and  methods 
of  the  union  are  to  improve  the  conditions  of 
such  a  laborer  and  to  enable  him  to  demand 
higher  wages  and  better  conditions  under  which 
to  work. 

Methods  of  the  Unions  in  Time  of  Peace. — 
There  are  two  peaceful  methods  which  have 
been  employed  by  the  unions  for  the  accom- 
plishment of  these  purposes :  limiting  the  num- 
ber of  laborers,  and  collective  bargaining. 

(a)  Limit  to  Number  in  One  Group  of  Work; 
Wages.  —  The  first  of  these  methods  places  the 
individual  laborer  in  a  position  of  advantage 
in  a  really  strategic  position,  so  that  he  as  an 
individual  may  secure  higher  wages  for  his 
labor  when  he  sells  it  to  the  employer.  This 
individual  may  for  a  time  support  himself  out 
of  the  union's  funds ;  and,  not  being  compelled 
to  sell  his  labor  every  day,  he  has  a  distinct 
point  of  advantage  in  bargaining  for  wages. 
By  refusing  to  admit  members,  the  union  may 
limit  the  number  of  workers  in  a  special  field. 
It  may  also  make  this  field  of  work  exclusively 
unionized.  By  these  acts  the  union  enables 
the  individual  laborer  to  obtain  higher  wages. 
It  keeps  the  supply  of  labor'  in  certain  fields 
at  a  small  amount,  and  according  to  the  great 
law  of  supply  and  demand  the  laborer  sells 


254    PRINCIPLES  OF  WEALTH  AND  WELFARE 

his  services  at  a  higher  price.  This  method  is, 
however,  by  no  means  so  powerful  as  the  one 
which  we  call  collective  bargaining. 

(b)  Collective  Bargaining;  Wages.  —  Even 
though  the  individual  worker  is  by  his  union 
given  a  position  of  advantage  in  selling  his 
services,  still  he  is  a  very  inefficient  trader  as 
compared  with  many  of  the  clever  and  shrewd 
employers.  Individual  bargaining,  though  un- 
der the  influence  of  a  powerful  union,  is  by  no 
means  so  successful  as  that  which  is  conducted 
by  the  most  skilled  manager  of  the  union.  By 
this  latter  method,  the  manager  of  the  union 
makes  with  the  employer  all  the  bargains  for 
wages.  The  manager,  who  is,  as  a  rule,  the  most 
skilled  and  intelligent  of  all  the  members  of  the 
union,  knows  the  labor  market.  He  knows  both 
the  supply  of  the  labor  of  a  certain  grade,  and  the 
demand  for  this  very  grade  of  labor.  He  also 
knows  how  to  deal  with  men ;  and  the  prices 
which  he  secures  for  the  labor  that  he  sells  are 
higher  than  those  received  under  the  method 
of  individual  bargaining.  Collective  bargain- 
ing is,  therefore,  a  powerful  method,  provided 
the  employer  will  deal  with  such  a  union  man- 
ager. And  the  union,  by  reason  of  its  common 
funds,  which  are  frequently  large,  possesses  a 
great  instrument  of  power  that  can  be  used 
against  the  employer.  If  the  employer  refuses 


WAGES:  TRADES  UNIONS  AND  FACTORY  ACTS    255 

to  recognize  the  union  manager,  or  if  he  will 
not  pay  for  labor  as  large  a  price  as  the  union 
manager  demands,  the  laborers  may  cease  to 
work  for  him ;  they  can  support  themselves  for 
a  time  out  of  the  union  funds.  This  situation 
unquestionably  gives  the  union  a  very  distinct 
point  of  advantage  in  selling  its  labor. 

Standard  of  Wages  and  Work  fixed  by  Union 
and  Employer.  —  Although  the  second  method  is 
by  far  the  more  powerful  and  successful,  it  is  of 
necessity  much  more  autocratic  than  is  the  first 
method.  Collective  bargaining  means  definite 
rules  of  wages,  hours,  and  conditions  of  work. 
Something  of  an  absolute  standard  of  work  and 
wages  must  be  maintained.  From  one  point  of 
view,  this  more  or  less  absolute  standard  takes 
from  the  individual  laborer  much  of  his  personal 
liberty.  But,  from  another  point  of  view,  this 
standard  brings  to  him  more  liberty;  his  em- 
ployer can  no  longer  exercise  such  great  control 
over  him.  This  collective  bargaining  and  this 
standard  of  work  and  wages  may  not  be  a  hin- 
drance to  the  employer.  If  the  employer  works 
with  labor  on  a  large  scale,  he  is  compelled  to 
maintain  such  a  standard  of  work  and  wages, 
whether  he  employs  union  or  non-union  labor- 
ers. Collective  bargaining  and  standards  may 
at  times,  however,  become  a  great  hindrance  to 
the  employer.  If  the  demands  of  the  union 


256    PRINCIPLES  OF  WEALTH  AND  WELFARE 

manager  for  wages  are  greater  than  the  labor- 
er's services  are  really  worth,  if  more  value  is  de- 
manded and  received  than  the  laborer  produces, 
collective  bargaining  becomes  not  only  a  hin- 
drance to  the  employer  but  also  a  burden  to  the 
consumer  of  the  goods  which  he  produces.  But 
suppose  that  the  employer  refuses  to  grant 
the  demands  of  the  union  manager,  and  rejects 
his  standards  of  wages  and  conditions  of  work. 
What  will  the  union  do?  It  may  propose  or 
accept  other  standards,  or  it  may  resort  to  in- 
struments of  war. 

Methods  of  the  Unions  in  Time  of  War.  —  Of 
all  these  instruments  of  war  the  most  powerful 
are  the  boycott  and  the  strike. 

(a)  Boycott;  Wages. — The  laborers,  non-union 
as  well  as  union,  may  come  to  an  agreement  not 
to  buy  any  kind  of  goods  whatever  of  certain 
persons,  who  have  in  their  stock  the  products  of 
the  employer  against  whom  the  laborers  have  a 
grievance.  Such  an  agreement  among  non- 
union laborers  is  as  a  rule  ineffective,  but  when 
it  is  made  between  the  numerous  members  of  a 
powerful  union  its  influence  is  enormously  great. 
The  dealer's  business  begins  to  decrease.  If 
the  boycott  continues  for  a  long  time,  he  must 
fail,  as  his  trade  with  the  laborers  is  vitally  im- 
portant. The  dealer  must  save  himself.  He 
brings  pressure  to  bear  upon  the  individual  or 


WAGES:  TRADES  UNIONS  AND  FACTORY  ACTS    257 

corporation  producer,  from  whom  he  buys  a 
part  of  his  goods,  and  against  whom  the  laborers 
have  a  grievance  ;  he  ceases  to  buy  his  products. 
Whether  this  producer  will  yield  to  the  demands 
of  his  laborers,  in  order  to  keep  the  trade  of  his 
retail  dealers,  depends  upon  the  force  of  the 
boycott  and  upon  the  circumstances  and  dis- 
position of  the  producer. 

Such  an  instrument  as  this  belongs  to  the  de- 
mon of  war,  certainly  not  to  the  guardian  spirit 
of  peace.  That  it  has  a  basis  in  sound  ethics, 
few  thinking  people  will  admit.  We  believe  that 
one  individual  has  the  perfect  moral  right  to  stop 
buying  goods  of  any  dealer  or  producer  when- 
ever he  deems  it  best  for  his  own  interest.  But, 
when  he  influences  other  individuals  and  causes 
them  to  make  an  agreement  with  him  not  to  buy 
products  of  certain  persons,  he  transgresses  a 
vital  principle  of  morals  and  of  religion.  But  the 
boycott  is  an  instrument  of  war,  and  the  union 
managers  make  few  attempts  to  defend  it  on 
moral  or  religious  grounds.  They  make  use  of  it 
as  an  instrument  of  expediency  and  power. 

(ft)  Strike;  Wages.  — The  boycott  is,  however, 
not  the  most  powerful  instrument  of  war  with 
which  labor  fights.  It  is  the  strike  which  has 
become  not  only  the  most  powerful  instrument 
of  industrial  war  but  also  one  of  the  forces  which 
disturb  the  modern  economic  realm  to  its  very 


258     PRINCIPLES  OF  WEALTH  AND  WELFARE 

foundation.  The  simple  form  of  a  strike  is  for 
the  laborers  to  stop  work,  when  their  demands 
for  wages  and  conditions  of  work  are  not  granted 
by  the  employer.  But  this  simple  strike  has  little 
effect  The  employer  buys  the  services  of  other 
laborers,  and  the  strikers  must  seek  new  fields  of 
employment.  The  second  phase  of  the  strike 
now  appears.  The  laborers  not  only  stop  work, 
but  they  also  attempt  to  prevent  the  business 
manager  from  employing  other  laborers.  In 
this  attempt  they  bring  great  pressure  against 
the'  employer.  They,  as  consumers,  declare  a  boy- 
cott against  his  products,  and  not  infrequently 
do  they  raise  the  hand  of  destruction  against 
his  plant.  They  also  bring  great  pressure  against 
the  non-union  laborers  who  would  take  their 
places.  Against  these  laborers  the  strikers  make 
threats  of  violence  and  at  times  perform  deeds 
of  violence.  The  places  of  the  strikers  must  not 
be  filled ;  otherwise  the  strike  almost  completely 
fails.  Even  non-union  strikers  resort  to  pressure, 
and  at  times  to  violence,  upon  their  employer 
and  upon  those  laborers  who  would  take  the 
places  of  themselves,  though  their  attempts  are 
by  no  means  as  successful  as  those  which  are 
made  by  the  powerful  unions. 

Causes  of  Strikes  and  their  Success.  —  This  great 
instrument  of  economic  war  has  been  resorted  to 
for  many  different  causes,  and  its  results  have 


WAGES  :  TRADES  UNIONS  AND  FACTORY  ACTS    259 

been  exceedingly  varied.  The  following  statis- 
tics of  the  causes  and  successes  of  the  strikes, 
which  occurred  in  our  own  country  during  the 
last  two  decades  of  the  nineteenth  century,  give 
us  a  graphic,  if  not  indeed  an  interesting  picture. 
Of  all  the  strikes  declared  during  these  twenty 
years,  28.70  per  cent  were  simply  for  higher 
wages,  and  of  these  strikes  only  29.85  per  cent 
failed  entirely.  For  increase  of  wages  and  re- 
duction of  hours,  there  were  11.23  per  cent,  of 
which  16.43  percent  were  complete  failures  ;  for 
reduction  of  hours  simply  there  were  11.16  per 
cent,  and  of  these  strikes  41.91  percent  failed 
entirely.  Against  the  reduction  of  wages,  there 
were  7.17  percent,  and  54.32  percent  of  these 
strikes  failed  completely.  Out  of  sympathy  for 
other  strikes  and  to  aid  these  strikes,  there  were 
3.47  per  cent,  of  which  72.64  per  cent  were  com- 
plete failures.  To  prevent  the  employment  of 
non-union  laborers,  to  make  the  control  of  the 
union  over  the  employer  more  complete,  there 
were  2.34  per  cent,  and  of  these  strikes  31.41  per 
cent  failed  entirely.  There  were  also,  during 
this  period,  strikes  for  many  other  causes,  but 
the  strikes  for  the  causes  which  we  have  just 
mentioned  constituted  the  larger  part.  Of  all 
the  strikes  of  this  period  about  60  per  cent  were 
for  wages  and  hours  of  work,  and  upon  the 
whole  strikes  for  these  causes  were  much  more 


260    PRINCIPLES  OF  WEALTH  AND  WELFARE 

successful  than  those  for  any  other  causes.  But, 
of  the  strikes  for  all  causes,  33.5  per  cent  of  those 
ordered  by  union  laborers  failed  and  55.4  per  cent 
of  those  ordered  by  non-union  laborers  failed. 
Cost  of  Strikes.  —  During  these  twenty  years, 
1881-1900,  there  occurred  the  great  number  of 
23,700  strikes  and  lockouts,1  and  these  involved 
no  less  than  6,610,000  workers.  The  loss  to 
the  laborers  alone,  as  far  as  it  can  be  estimated  in 
wages,  —  and  their  wages  constituted  only  a  part 
of  their  total  loss, —  amounted  to  the  enormous 
sum  of  $306,683,000.  And  the  employers 
suffered,  by  the  stoppage  of  their  factories  and 
plants,  and  by  the  destruction  of  their  property, 
not  less  than  $142,659,000.  A  total  loss  of 
$449,342,000!  These  strikes  and  lockouts  en- 
tailed a  great  loss  not  only  upon  the  laborer  and 
his  employer,  but  also  upon  the  consumer  of  the 
products  of  these  workers.  Much  of  this  great 
loss  to  the  laborer  and  the  employer  was  shifted 
upon  the  shoulders  of  the  consumer.  But  this 
great  financial  loss  to  the  laborer,  the  employer, 
and  the  public,  is  by  no  means  all  of  the  loss. 
These  strikes  and  lockouts  also  brought  into 
our  life  disturbances,  demoralization,  and  bitter 
feelings,  the  cost  of  which  no  one  can  ever 
calculate.  American  economic,  political,  and 

1  Employers    closed  their    mills,  etc.,  in    order  to  forestall 
strikes. 


WAGES:  TRADES  UNIONS  AND  FACTORY  ACTS    261 

social  life  has  been  disturbed  by  these  industrial 
wars  to  its  very  foundation. 

Ethics  of  Strikes. —  Can  such  wars  be  defended 
by  sound  principles  of  morals?  We  believe 
that  the  individual  laborer  has  the  perfect  legal 
and  moral  right  to  stop  work,  whenever  he  and 
his  employer  cannot  agree  upon  wages  and 
the  conditions  of  work.  The  owner  of  ordinary 
commodities  most  certainly  has  the  right  to 
hold  his  goods  until  he  can  sell  them  for  the 
price  which  he  desires,  and  the  laborer  is  in  a 
large  sense  such  an  owner.  Individual  workers 
likewise  may  agree  to  stop  work,  whenever 
the  employer  does  not  pay  them  a  sufficient 
price  for  their  services.  But  this  simple  form  of 
a  strike  is  of  very  little  effect,  and  it  is  now  rarely 
ever  used.  The  laborers  agree  and  pledge 
themselves  not  only  to  stop  work,  suddenly  as  a 
rule,  but  also  to  employ  every  possible  means  to 
prevent  the  employer  from  filling  their  places. 
These  means  are  employed  against  the  business 
manager,  and  also  against  the  non-union  laborers 
who  would  take  the  places  of  the  strikers.  The 
strikers  as  consumers  boycott  the  employer's 
products,  and  as  strikers  they  oftentimes  de- 
stroy his  property.  Against  the  workers  who 
are  about  to  take  their  places,  they  use  intimi- 
dation, threats,  and  actual  violence.  Can  such 
a  form  of  the  strike  as  this  be  defended  in  sound 


262    PRINCIPLES  OF  WEALTH  AND  WELFARE 

morals  and  ethics  ?  We  cannot  think  so.  And 
the  managers  of  such  a  strike  make  few  serious 
attempts  to  defend  its  principles.  They  appreci- 
ate its  power  and  employ  it  as  a  means  of  war. 
They  also  not  infrequently  declare  that  the 
moral  standards  which  are  accepted  in  times 
of  peace  cannot  apply  in  times  of  war.  They 
are  working  primarily  for  results  which  will 
benefit  themselves  in  higher  wages  and  shorter 
hours ;  they  care  less  for  the  principle  involved. 
They  well  know  that  at  times  the  employer 
does  not  deal  with  them  on  the  principle  of  sound 
morals,  and  that  he  drives  hard  bargains  with 
the  poor  and  ignorant  worker.  They  should 
likewise  know,  and  thoroughly  appreciate  the 
fact,  that  wrong  conduct  on  the  part  of  an  oc- 
casional employer  affords  no  moral  defense 
whatever  for  their  own  acts  of  wrong. 

For  either  employer  or  laborer  to  resort  to  the 
use  of  expedients,  which  have  no  foundation 
in  sound  ethics  but  which  bring  temporary 
benefits  to  themselves,  usually  at  the  cost  of 
others,  is  for  a  people  to  degrade  itself.  For 
any  man,  it  makes  no  difference  what  his 
economic  position  may  be,  it  makes  no  difference 
whether  he  be  a  simple  toiler  or  a  great  em- 
ployer, to  use  such  warlike  instruments  for  his 
own  advantage  alone,  is  to  divorce  economic 
activity  and  effort  from  ethics  and  religion. 


WAGES:  TRADES  UNIONS  AND  FACTORY  ACTS    263 

Methods  of  Relief:  to  do  away  with  Boycotts 
and  Strikes.  —  To  change  such  an  acute  and  un- 
sound situation  is  now  commanding  the  most 
serious  attention  of  the  business  man,  the  states- 
man, the  teacher,  and  the  preacher.  This 
gigantic  struggle  between  the  laborer  and  the 
employer,  between  labor  and  capital,  as  it  is 
popularly  though  incorrectly  called,  is  unques- 
tionably our  greatest  and  most  vital  problem. 
It  has  come  as  a  result  of  a  lack  of  adjustment 
between  that  agent  of  production  which  we  call 
business  management  and  that  other  agent 
called  labor.  And  the  chief  point  of  conflict 
between  these  two  agents  of  production  is  not 
in  reference  to  the  production  of  certain  prod- 
ucts, but  in  reference  to  their  distribution.  The 
fundamental  reason  for  this  war  is,  we  believe, 
the  fact  that  the  business  manager  has  not  paid 
to  labor  a  sufficiently  high  price ;  he  has  not 
distributed  unto  labor  all  the  value  that  labor 
has  created.  Though  the  union  manager  is 
very  largely  responsible  for  some  of  the  worst 
aspects  of  this  terrible  industrial  war,  the  trade 
or  labor  union  itself  came  into  existence  because 
labor  was  not  receiving  its  due  earnings.  Every 
solution  of  this  very  vital  and  grave  problem,  it 
makes  no  difference  what  the  special  form  of 
the  solution  may  be,  must  be  based  upon  the 
fact  that  both  parties  are  in  their  conduct  partly 


264    PRINCIPLES  OF  WEALTH  AND  WELFARE 

in  the  right  and  partly  in  the  wrong.  The 
fault  is  not  entirely  with  the  laborers  or  with 
the  union  of  laborers.  Nor  is  it  wholly  with 
the  business  manager  or  with  the  union  of  busi- 
ness managers.  Both  parties  are  vitally  con- 
cerned, and  both  have  sinned  and  violated  the 
great  ethical  and  religious  principles  upon  which 
all  economic  conduct  should  be  based.  The 
form  of  the  solution  must,  therefore,  be  of  a 
twofold  kind,  —  one  in  which  both  parties  work 
together,  —  and  it  must  be  based  upon  the  great 
moral  principles  of  man  and  of  God. 

(a)  Conciliation ;  Wages.  —  The  wage  prob- 
lem, which  always  exists  between  the  employer 
and  the  laborer,  must  then  be  solved  along  the 
line  of  conciliation ;  and  this  conciliation  must 
be  worked  out  under  the  powerful  influence  of 
public  opinion,  and  under  a  certain  amount  of 
governmental  regulation.  For  conciliation  to 
be  at  all  easily  effected,  each  party  must  main- 
tain a  special  and  permanent  board,  whose 
purpose  it  is  to  consider  all  the  points  in  dis- 
pute, or  a  single  board  composed  of  an  equal 
representation  from  each  party.  These  boards 
should  be  not  only  permanent,  but  also  com- 
posed of  the  very  ablest  and  best  men.  But 
this  form  of  the  solution  assumes  that  the 
laborer,  as  well  as  the  employer,  is  organized  into 
some  form  of  a  union.  Such  boards  are  now 


WAGES :  TRADES  UNIONS  AND  FACTORY  ACTS    265 

in  existence  in  many  parts  of  the  world  where 
industrial  war  occurs,  and  the  results  of  their 
operation  have  been  for  the  most  part  success- 
ful. These  boards  of  conciliation  do  not,  how- 
ever, possess  the  power  to  act  finally  for  either 
the  laborer  or  the  employer;  they  can  only 
render  assistance  in  adjusting  and  pacifying  the 
parties  who  are  in  dispute.  But  suppose  that 
conciliation  fails.  Is  there  no  other  solution  of 
this  most  vital  problem  ? 

(b)  Arbitration  ;  Wages.  —  In  case  the  par- 
ties in  conflict  cannot  be  conciliated  among 
themselves  and  through  boards  of  conciliation, 
the  points  in  dispute  may  be  presented  to  an 
arbitration  board  which  represents  both  parties. 
The  purpose  of  this  board,  as  that  of  the  con- 
ciliation boards,  is  to  adjust  and  compromise 
matters  and  consequently  to  prevent  such  an  in- 
dustrial disturbance  as  a  boycott  or  a  strike. 

The  success  of  this  arbitration  depends,  of 
necessity,  upon  the  willingness  of  both  parties  to 
accept  the  decisions  of  the  board.  Voluntary 
arbitration,  or  that  which  is  left  to  the  discretion 
of  both  parties,  has  so  often  failed  as  to  cast 
much  discredit  upon  it.  Shall  we  have  com- 
pulsory arbitration?  The  chief  reasons  which 
have  been  assigned  in  favor  of  compulsory  arbi- 
tration are  that  the  problems  to  be  solved  are 
most  important  and  vital  and  that  their  solution 


266    PRINCIPLES  OF  WEALTH  AND  WELFARE 

by  the  parties  in  dispute  has  for  the  most  part 
been  a  signal  failure.  The  laborer  and  the  em- 
ployer unquestionably  have  so  far  failed  in  their 
attempts  to  solve  this  aggravating  and  over- 
whelming problem.  And  whether  these  parties 
may  ever  work  out  a  solution  which  will  in  the 
main  be  satisfactory,  or  whether  the  state  can 
most  easily  and  efficiently  solve  this  problem,  is 
a  highly  debatable  proposition.  Arbitration  de- 
cisions by  the  state  would  of  course  be  binding 
upon  both  parties,  while  those  made  by  the  par- 
ties themselves  will  always  be  voluntary.  That 
the  state  shall  put  an  end  to  a  fight  between 
two  individuals,  that  the  state  shall,  by  means 
of  its  police,  courts,  and  army,  keep  the  peace 
and  order  of  the  whole  community,  has  long 
been  recognized  as  the  proper  function  of  the 
state.  Why  should  the  state  not  also  compel 
two  parties,  laborers  and  employers,  who  are 
waging  a  great  and  disastrous  economic  war  to 
come  to  terms  of  peace  ? 

(c)  Legal  Incorporation  of  the  Unions  and 
Suits  for  Damage.  —  Boards  of  voluntary  con- 
ciliation and  arbitration  have  indeed  accom- 
plished something.  Compulsory  conciliation 
and  arbitration,  in  a  few  of  the  Australian  states, 
have  likewise  achieved  more  or  less  of  success. 
That  the  American  state  will  put  into  opera- 
tion a  system  of  compulsory  arbitration,  we  do 


WAGES  :  TRADES  UNIONS  AND  FACTORY  ACTS    267 

not  expect,  at  least  within  the  near  future.  But 
though  our  government  may  never  attempt  to 
put  an  end  to  great  industrial  wars  by  means 
of  compulsory  arbitration,  it  may  soon  require 
that  unions  of  laborers  incorporate  themselves 
according  to  law,  and  that  they  act  according  to 
such  legal  rights  as  the  state  sees  fit  to  grant  to 
them.  The  state  has  the  right  to  require  or- 
ganizations of  business  managers  to  incorporate 
and  thereby  become  legal  bodies.  Why  may  it 
not  make  the  same  requirement  of  trade  or  la- 
bor organizations?  This  would  give  the  unions 
the  legal  power  to  bring  suit  against  employers 
for  breach  of  contract  or  for  damages.  It 
would  also  give  them  a  position  of  much  greater 
respect  and  dignity.  And  such  a  legal  require- 
ment would  give  to  the  employer,  to  the  other 
laborers,  and  to  the  public,  an  instrument  which 
could  be  used  with  great  effect  against  the 
unions  for  the  acts  of  violence  and  destruction 
which  their  members  commit.  There  would 
then  be  no  question  whatever  about  the  right  of 
injured  persons  to  bring  suit  against  the  union's 
reserve  funds.  Legal  incorporation  would,  there- 
fore, compel  the  managers  to  exercise  greater 
discretion  in  their  own  acts  and  also  greater  con- 
trol over  the  individual  members  of  their  unions. 
Such  a  requirement  would,  however,  greatly  di- 
minish the  power  of  the  union.  When  its  funds 


268    PRINCIPLES  OF  WEALTH  AND  WELFARE 

have  been  taken  by  the  courts  to  pay  damages, 
one  of  its  greatest  means  of  power  and  influence 
has  been  taken  from  the  union.  Without  such 
a  reserve  fund  the  laborers  could  scarcely  afford 
to  go  on  a  strike. 

Such  a  requirement  by  the  state  has,  how- 
ever, not  yet  been  made.  Is  there  now  no  legal 
means  whereby  those  who  suffer  from  the  more 
violent  acts  of  the  unionists  may  have  redress? 
Until  very  recent  years  it  has  been  assumed 
by  the  courts  of  England  and  of  the  United 
States  that,  unless  the  union  is  incorporated 
by  law,  no  suits  for  damages  can  be  brought 
against  it  But  such  an  assumption  has  now 
been  set  aside.  It  was  in  1901  that  the  highest 
court  of  England  declared,  in  the  now  famous 
decision  known  as  the  Taff  Vale  case,  that, 
though  the  union  is  not  incorporated  by  a  char- 
ter from  the  state,  it  is  nevertheless  liable  in 
damages  for  the  acts  of  its  agents.  The  effect 
of  such  a  decision  has  been  great.  Courts  else- 
where are  now  accepting  the  principle  of  the 
English  decision  and  are  granting  damages 
against  unions.  And  the  result  may  finally 
be  that  unions  will  voluntarily  ask  for  a  legal 
incorporation. 

General  Results  of  Trades  Unions;  Wages. — 
We  have  now  considered  the  trades  unions 
from  the  point  of  view  of  their  causes,  aims, 


WAGES :  TRADES  UNIONS  AND  FACTORY  ACTS    269 

and  purposes,  from  the  point  of  view  of  their 
methods  in  time  of  peace  and  war,  from  the 
point  of  view  of  the  great  and  profound  indus- 
trial struggle  which  they  have  precipitated,  and 
finally  from  the  point  of  view  of  the  settlement 
of  this  vital  conflict.  What  are  some  of  the  re- 
sults which  have  accrued  from  all  of  this  work, 
agitation,  and  struggle  ?  Let  us  make  an  exami- 
nation of  the  life  and  experiences  of  the  unions. 
And  we  find  that  this  life,  though  it  has  spent 
much  of  its  force  in  fierce  conflict  and  bitter 
feeling,  reveals  itself  as  possessed  of  many  strong 
and  admirable  points.  The  historical  testimony 
is  most  strongly  to  the  effect  that  trade  or  labor 
unions,  in  spite  of  their  abuses,  have  brought 
good  into  the  world.  It  declares  to  us  in  un- 
mistakable evidence  that  they  have  elevated  «the 
position  and  improved  the  productive  power  of 
the  laborer,  and  that  they  have  raised  the  gen- 
eral standard  of  wages  and  conditions  of  work, 
not  only  for  their  own  members  but  also  for 
non-union  laborers.  And  the  testimony  which 
was  taken  by  the  United  States  Industrial  Com- 
mission, 1898-1900,  is  overwhelmingly  to  the 
point  that  the  economic  conditions  of  the  union 
members  have  been  greatly  improved  as  a  result 
of  the  unions,  in  spite  of  the  fact  that  their  meth- 
ods and  practices  have  at  times  been  violent  and 
ethically  unsound.  U  nions  have  made  it  possible 


270    PRINCIPLES  OF  WEALTH  AND  WELFARE 

for  the  laborers  to  work  shorter  hours  and  re- 
ceive higher  wages,  and  have  thereby  added  to 
their  productive  power  and  welfare.  While  they 
have  in  times  of  their  wars  brought  great  loss 
and  disturbance  to  themselves  and  to  the  whole 
society  in  which  they  put  forth  their  activity, 
while  they  have  created  bitter  and  hostile  feel- 
ings and  at  times  displayed  intense  selfishness, 
the  unions  have  not  upon  the  whole  failed 
in  their  mission  and  work.  They  have  caused 
many  a  selfish  employer  to  deal  with  his  labor- 
ers in  a  more  honest  way ;  they  have  compelled 
him  to  pay  in  wages  for  the  value  which  labor 
produces  for  him.  Their  economic  results  have, 
therefore,  for  the  most  part  been  for  the  wealth 
and  welfare  of  the  toilers  of  ordinary  talent. 
And  their  work  for  this  class  of  laborers,  though 
it  has  oftentimes  been  wrought  in  injustice  and 
in  wrath,  has  not  by  any  means  wholly  failed. 
The  common  toiler  has  received  benefit,  and  in 
consequence  the  whole  economic  world  has 
been  improved. 

Factory  Acts  and  Wages.  —  We  have  already 
said  that  labor,  in  consequence  of  its  peculiari- 
ties as  a  commodity  to  be  bought  and  sold,  is 
oftentimes  placed  in  a  position  of  disadvantage. 
The  employer  of  labor,  rather  than  the  common 
laborer,  has  the  position  of  advantage  on  the 
labor  market,  and  not  infrequently  does  this 


WAGES  :  TRADES  UNIONS  AND  FACTORY  ACTS    2/1 

employer  make  use  of  his  advantageous  position 
to  drive  a  hard  bargain  with  his  laborers.  This 
selfish  conduct  on  the  part  of  the  employer  has, 
as  we  have  said,  had  much  to  do  in  bringing  the 
union  of  laborers  into  existence  and  in  creating 
in  this  union  an  attitude  of  hostility.  This  self- 
ish tendency  on  the  part  of  the  employer  has 
also  had  much  influence  in  the  creation  of  a 
great  body  of  economic  laws  called  the  factory 
acts.  The  state  has  been  compelled  to  protect 
the  weak  and  ignorant  laborer,  especially  the 
child  and  the  woman,  from  the  greed  of  the  em- 
ployer. These  factory  acts  belong  to  the  modern 
period.  They  belong  to  the  time  when  the  em- 
ployer uses  many  laborers  and  works  them  in  fac- 
tories and  mills.  Though  a  modern  institution  of 
only  a  century  in  age,  the  factory  act  to-day  pre- 
vails over  an  area  larger  than  that  covered  by  the 
public  policeman.  It  is  almost  coextensive  with 
the  system  of  education  maintained  by  the  state. 
And  though  a  new  institution,  the  factory  act  is 
truly  one  of  the  world's  greatest  achievements. 
It  has  profoundly  influenced  the  productive 
power  of  labor  and  has  added  to  the  world's 
wealth  and  welfare. 

Children  and  Women  in  Factories  and  Mills.  — 
The  factory  act  provides  protection,  by  the  state, 
to  the  children  and  women  who  toil  in  factories 
and  workshops.  The  state  affords  protection 


PRINCIPLES  OF  WEALTH  AND  WELFARE 

to  those  who  are  not  able  to  protect  themselves 
against  the  demands  of  the  employers,  and 
to  those  who  have  not  the  foresight  to  save 
their  little  strength  and  energy  for  future  and 
greater  uses.  Modern  legislation  in  reference 
to  the  hours  of  work  for  adults,  and  in  reference 
to  wages  for  all  kinds  and  classes  of  laborers 
has  been  exceedingly  slight.  But  legislation  in 
reference  to  the  hours  of  work  of  the  women 
and  children  who  toil  in  factories  has,  on  the 
other  hand,  been  very  extensive  and  complex. 
This  legislation  looks  toward  the  promotion  of 
the  health  and  strength  of  the  child.  It  will 
not  permit  the  manufacturer  to  employ  the 
child  of  from  twelve  to  eighteen  years  of  age 
for  long  hours  or  under  unwholesome  or  dan- 
gerous conditions.  It  will  not  allow  the  child 
under  twelve  years  of  age  to  work  at  all  in  such 
a  place.  The  state  thus  protects  the  child 
until  his  strength  and  energy  have  become 
great  enough  for  him  to  protect  himself,  and 
this  protection  on  the  part  of  the  state  is  abso- 
lutely necessary.  That  people  which  permits 
the  health  and  energy  of  its  children  to  be 
sapped  is  truly  destroying  itself.  That  people 
which  causes  or  allows  its  children  to  toil 
during  their  early  years,  perhaps  under  fourteen 
years  of  age,  when  their  sole  purpose  should 
be  to  build  up  strong  and  vigorous  bodies  and 


WAGES  :  TRADES  UNIONS  AND  FACTORY  ACTS    273 

intelligent  brains,  makes  a  vital  thrust  at  its  own 
life  and  deprives  itself  of  much  productive  power 
and  general  welfare. 

This  legislation  looks  also  to  the  protection 
of  the  woman  who  toils  in  the  factories  and 
mills.  It  does  not  permit  her  to  work  for  long 
hours  and  under  unwholesome  conditions.  It 
does  not  permit  her  to  work  at  all  during 
two  weeks  before  childbirth  and  for  a  month 
afterwards.  And  when  the  state  protects  the 
women  who  toil  in  the  factories  and  mills,  it  is 
promoting  the  health  and  strength  of  both 
present  and  future  generations,  and  is  thereby 
adding  to  its  productive  power  and  to  its  general 
welfare. 

It  is  England  which  has  taken  the  world's 
lead  in  all  of  this  legislation,  and  for  her  its 
results  have  been  marvelously  great.  Since 
1860,  as  the  American  states  have  become  more 
and  more  of  the  manufacturing  type,  the  factory 
act  of  England  has  been  adopted  and  put  into 
operation  by  us.  Some  of  our  states  have 
been  slow  to  make  such  a  move,  and  the 
factory  owner  has  oftentimes  shown  great  hos- 
tility to  such  legislation,  but  the  movement  is 
unquestionably  going  forward.  Within  a  few 
more  years  every  American  state,  in  which 
is  located  a  factory,  will  certainly  enact  such 
laws. 


2/4    PRINCIPLES  OF  WEALTH  AND  WELFARE 

QUESTIONS 

(1)  Do  you  think  that  trades  unions  benefit  the  laborer 
and  the  public? 

(2)  Would  you  boycott  your  merchant? 

(3)  Would  you  go  on  a  strike  ? 

(4)  Can   boycotts   and   strikes   be   avoided?    By  what 
means? 

(5)  Do  you   think   that  a  child  of  twelve  years  of  age 
should  be  allowed  by  the  state  to  work  in  a  factory  or  mill  ? 


CHAPTER  IV 

DISTRIBUTION  OF  WEALTH  AND  RENT 

Rent  regulated  by  the  Inherent  Power  of  Land 
at  work  under  its  Conditions  of  Supply  and  Demand. 
— We  have  already  considered  the  part  which 
land  plays  in  the  production  of  wealth.  But  what 
of  land  in  the  distribution  of  wealth  ?  What  of 
rent  ?  According  to  our  standard  of  distribu- 
tion, rent  is  the  earning  of  the  inherent  produc- 
tive power  of  land  at  work  under  the  conditions 
of  the  supply  of  land  as  compared  with  the  de- 
mand for  it.  Land,  as  we  understand  it  as  a 
producing  agent,  should  be  considered  as  an  or- 
dinary product  or  commodity,  which  is  bought 
and  sold.  It  sells  for  a  price  just  as  does  labor, 
raw  cotton,  or  railway  service;  and  the  price  of 
any  of  these  commodities  depends  not  only  upon 
its  inherent  properties  but  also  upon  the  demand 
for  it.  The  business  manager  must  pay  a  price 
for  the  use  of  land,  as  well  as  for  the  use  of  labor 
or  capital.  The  fact  that  he  himself  at  times 
owns  the  land  which  he  uses  does  not  at  all 

275 


2/6    PRINCIPLES  OF  WEALTH  AND  WELFARE 

eliminate  the  price  which  he  pays  for  its  use. 
He  may  also  own  his  labor  or  his  capital,  but  in 
either  case  he  must  pay  a  price  for  their 
services. 

Productive  Powers  of  Land ;  how  Estimated.  — 
And  the  productive  power  of  this  agent  is  cal- 
culated, as  is  the  value  of  any  ordinary  commod- 
ity or  that  of  labor,  on  the  margin.  The  em- 
ployer of  land  experiments  with  a  unit  of  it,  say 
an  acre  or  so  many  square  feet,  for  various  uses. 
He  also  experiments  with  several  units  of  it  for 
the  very  same  use.  By  means  of  these  experi- 
ments he  can  estimate  with  a  fair  degree  of  ac- 
curacy the  power  which  land  possesses  to  pro- 
duce utilities.  Every  acre  of  land  has  some 
utilities,  possesses  some  productive  power  for 
any  and  all  uses,  unless  it  exists  in  such  great 
abundance  that  there  is  no  demand  whatever 
for  it  and  that  no  effort  has  to  be  put  forth  in 
order  to  obtain  it.  For  one  use  it  may  produce 
utilities  or  values  which  are  equal  to,  let  us  say, 
100  cents,  while  for  other  uses  it  may  produce 
utilities  equal  to  99  or  101  cents.  And  the 
business  manager  will  as  a  rule  employ  the 
unit  of  his  land,  as  he  does  the  unit  of  his  labor 
or  capital,  for  that  use  in  which  it  has  the  great- 
est possible  productive  power  or  the  greatest 
earning  capacity.  He  will  use  it  in  that  field 
of  production  in  which  it  will  bring  him  101 


DISTRIBUTION  OF  WEALTH  AND  RENT     277 

cents,  rather  than  in  the  field  in  which  it  will 
earn  only  99  or  100  cents. 

Efficiency  of  Land  and  Rent.  —  The  productive 
power  of  land,  therefore,  depends  largely  upon 
(i)  the  uses  which  are  made  of  it.  But  the  uses 
for  which  it  is  employed  are  in  turn  largely 
dependent  upon  (2)  its  inherent  properties,  or 
upon  (3)  its  situation  in  the  economic  society. 
Land  may  be  employed  for  agricultural,  mining, 
building,  or  transportation  uses.  For  the  most 
part,  it  is  employed  in  that  field  of  production 
in  which  it  has  the  greatest  productive  power 
and  earns  the  maximum  of  rent. 

We  have  already  seen,  under  the  head  of 
land  as  a  producing  agent,  that  its  inherent 
productive  properties  for  agricultural  purposes 
are  those  of  its  various  chemical  compounds 
and  agents,  of  its  mechanical  conditions  of 
looseness,  and  of  its  heat,  light,  and  moisture. 
But  the  chemical  and  mechanical  properties 
are  the  resultant  of  both  nature  and  man. 
To  some  units  of  land  it  is  nature  which  has 
contributed  most  of  these  properties,  while  in 
other  units  man  by  the  process  of  fertilizing 
and  tillage  has  added  much.  The  earning 
power  of  these  units  depends  not  only  upon 
what  nature  and  man  have  together  given  to 
the  soil,  but  also  upon  the  kind  of  crop  which 
is  planted  upon  it.  To  sow  wheat  upon  a  soil 


2/8    PRINCIPLES  OF  WEALTH  AND  WELFARE 

which  possesses  in  great  abundance  the  prop- 
erties required  for  cotton  culture,  is  to  make  a 
non-economical  use  of  the  inherent  properties 
of  the  soil,  and  the  rent  is  necessarily  small. 
For  such  a  use  this  soil  possesses  no  great 
productive  power.  To  plant  this  soil  in  cotton 
causes  it,  on  the  other  hand,  to  bring  forth 
products  of  much  greater  value.  For  agricul- 
tural uses  the  earnings  of  units  of  land  are, 
therefore,  largely  regulated  by  their  efficiency 
or  by  their  inherent  productive  properties. 

Lands  may  be  used  for  mining  instead  of 
tillage,  but  the  rent  of  this  use  is  largely 
regulated  by  the  productive  power  of  the  min- 
eral deposits.  And  this  power  is  the  resultant 
of  their  inherent  properties  and  of  their  supply 
as  compared  with  the  demand  for  them.  The 
rent  of  the  land  used  for  building  or  trans- 
portation purposes  is  likewise  fundamentally 
regulated  by  its  productive  power,  but  its  pro- 
ductive properties  for  these  uses  consist  solely 
of  its  situation  and  space  extension. 

In  land  for  all  the  uses  which  are  made  of  it,  and 
especially  for  building  and  transportation  pur- 
poses, situation  is  a  very  important  element ;  and 
its  productive  power  is,  therefore,  greatly  influ- 
enced by  this  element.  To  this  element  of  pro- 
ductivity nature  adds  but  little,  and  man  as  an 
individual  also  adds  but  little.  This  situation 


DISTRIBUTION  OF  WEALTH  AND  RENT      279 

property  of  land  is  for  the  most  part  created  by 
many  individuals  collecting  together  in  their  eco- 
nomic activity.  Let  us  illustrate  this  point.  A 
small  lot  of  ground  in  New  York  City  earns  in 
annual  rent  $10,000.  A  lot,  of  exactly  the  same 
size  and  possessed  of  exactly  the  same  inherent 
qualities,  located  in  the  rural  sections  of  the  South 
or  West  earns  in  annual  rent  but  $10.  In  these 
two  cases,  and  they  are  by  no  means  exceptional, 
the  earning  power  is  wholly  dependent  upon 
the  situation.  The  great  productive  power  of  the 
land  in  the  first  illustration  is  largely  due  to  the 
fact  that  the  American  people  have  made  a  few 
square  miles  on  Manhattan  Island  the  center  of 
all  their  economic  life.  While  nature  has  given  to 
these  few  acres  a  position  of  great  geographical 
and  economic  advantage,  it  is  the  American 
people  in  their  economic  dealings  with  each  other, 
and  with  those  of  Europe,  who  are  the  real  cre- 
ators of  this  wonderful  productive  power.  To  the 
same  number  of  acres  located  in  middle  North 
Carolina,  nature  has  given  no  position  of  advan- 
tage whatever,  and  the  American  economic  activ- 
ity has  given  no  great  crowds  of  men  and  women. 
The  extraordinarily  great  rent  in  one  place  and 
the  very  small  rent  in  the  other  are,  however,  both 
fundamentally  regulated  by  the  same  law.  They 
are  regulated  by  the  law  of  the  productive  power 
of  land.  The  use  of  the  acre  which  is  located  in 


280    PRINCIPLES  OF  WEALTH  AND  WELFARE 

New  York  City  is  worth  in  commercial  value 
one  thousand  times  as  much  as  is  the  use  of  the 
acre  in  North  Carolina. 

Supply  of  Land  and  Rent. — We  have  already  said 
that  the  productive  power  of  land,  as  that  of  all 
the  other  agents  of  production,  depends  not  only 
upon  its  own  inherent  properties  but  also  upon 
its  supply  as  compared  with  the  demand  for  it. 
Properties  which  exist  in  such  great  abundance 
that  no  effort  need  be  put  forth  in  order  to  obtain 
them  have,  as  we  have  said,  no  value  whatever. 
They  are  not  utilities  in  an  economic  sense,  and 
consequently  do  not  exchange  between  man  and 
man ;  they  are  so  abundant  as  to  be  common  to 
all.  For  such  properties  no  price  is  offered  and 
none  is  demanded.  In  an  economic  sense  they 
possess  no  productive  power.  But  such  proper- 
ties do  not  now  belong  to  land  or  to  any  of  the 
other  agents  of  production. 

The  supply  of  land  is,  therefore,  an  element  in 
its  productive  power  and  in  the  earnings  of  this 
power.  The  supply  of  land,  as  well  as  its  in- 
herent properties,  regulates  rent  or  the  price 
at  which  the  use  of  land  sells,  and  in  the  same  gen- 
eral way  as  the  supply  of  labor  and  capital  regu- 
lates wages  and  interest.  The  $10,000  annual 
rent  of  a  small  unit  of  land  located  in  New  York 
City  is  largely  due  to  the  scarcity  of  land  on  Man- 
hattan Island,  and  especially  to  the  scarcity  of 


DISTRIBUTION  OF  WEALTH  AND  RENT     281 

land  in  a  certain  spot,  say  on  lower  Broadway. 
The  supply  of  such  lots  is  exceedingly  small  as 
compared  with  the  demand  which  millions  of 
people  create  for  it.  The  four  millions  of  people 
who  live  in  Greater  New  York  City  have  much 
to  do  in  creating  this  great  productive  power  in 
the  land,  but  their  number  is  small  when  com- 
pared with  the  many  millions  throughout  the 
American  continent  and  the  other  continents  of 
the  world  who  look  to  New  York  as  the  center 
of  their  economic  life.  The  man  in  South  Africa 
who  buys  American  products  indirectly  creates 
something  of  a  demand  for  these  few  acres  of 
New  York  lands.  The  California  or  Florida 
fruit  grower  indirectly  creates  more  of  a  demand ; 
he  sends  his  fruits  to  New  York  for  distribution 
to  many  parts  of  the  United  States  and  for  foreign 
sale.  Every  soul  who  sells  or  buys  goods  through 
New  York  City,  directly  or  indirectly,  —  and 
most  Americans  and  many  foreigners  do,  —  adds 
to  the  demand  for  the  lands  of  Manhattan  Island. 
And  in  the  rent  of  the  lot  which  is  located 
hundreds  of  miles  from  New  York  City,  where 
the  annual  rent  is  but  $10,  the  supply  of  land  as 
compared  with  the  demand  for  it  also  plays  a 
great  part.  This  rent,  as  well  as  the  $10,000 
rent,  is  the  result  of  the  inherent  properties  of  the 
land  and  the  demand  for  it.  In  creating  the  prop- 
erties which  earn,  in  the  shape  of  rent,  only  $10, 


282    PRINCIPLES  OF  WEALTH  AND  WELFARE 

society  has  done  but  little.  But  in  creating  the 
powers  which  earn  $10,000,  society  has  done  very 
much.  All  productive  power,  as  we  have  seen, 
is  the  product  of  the  individual  man,  of  nature 
and  her  forces,  and  of  the  larger  body  of  individ- 
uals which  we  call  society.  And  land,  in  reference 
to  the  source  of  its  productive  power,  is  not 
different  from  labor,  capital,  or  business  man- 
agement ;  nor  is  it  essentially  different  from  all 
the  ordinary  commodities.  They  are  all  funda- 
mentally given  their  productive  power  and  value 
by  virtue  of  the  number  of  people  who  have 
wants  and  demands  for  them. 

There  is,  however,  one  point  in  which  rent 
differs  from  wages,  interest,  or  the  pay  of  busi- 
ness management.  We  have  seen  that  with  the 
growth  of  population  wages  tend  to  decrease, 
unless  the  growth  of  labor  is  attended  by  an 
equal  or  greater  growth  in  the  demand  for  it,  and 
at  least  a  corresponding  growth  in  wealth.  This 
same  tendency  is  equally  true  in  interest.  As 
capital  increases,  its  earnings  or  productive 
power  per  dollar  decrease,  unless  there  is  at  the 
same  time  an  equally  great  increase  in  the  de- 
mand for  it.  This  same  tendency  is  also  true  of 
the  pay  of  business  management.  But  while  the 
other  agents  tend  to  diminish  per  unit  in  their 
productive  power  and  earnings  as  economic  life 
goes  upward  and  onward,  land  tends  to  increase 


DISTRIBUTION  OF  WEALTH  AND  RENT      283 

in  its  productive  power  and  its  rent  as  population, 
capital,  and  business  management  increase. 
Rent  is  now  in  the  main  much  higher  per  unit  of 
land  than  it  was  for  the  same  land  twenty-five 
years  ago.  And  this  is  true  not  only  in  our  own 
country,  but  also  among  every  other  progressive 
people.  The  supply  of  land  is  becoming  more 
and  more  limited,  while  that  of  the  other  agents 
is  becoming  greater  and  greater ;  and  this  ten- 
dency has  a  profound  influence  upon  rent,  wages, 
interest,  and  the  pay  of  business  management. 
"Single  Tax"  Doctrine  and  Rent.  —  This  ten- 
dency of  land  to  increase  in  its  productive  power 
and  its  rent,  in  consequence  of  the  growth  of 
population  and  economic  activity,  has  called 
forth  a  great  amount  of  discussion  of  the  rent 
problem.  It  has  also  been  the  chief  cause  of 
the  foundation  of  a  very  famous  and  influential 
doctrine  of  taxation  —  "  single  tax."  This 
"single  tax"  doctrine  has  meant  slightly  dif- 
ferent things  at  different  times.  As  we  use  it, 
it  means  that  there  should  be  but  one  tax,  and 
that  levied  on  the  so-called  "unearned  increment" 
in  the  value  of  land.  It  is  claimed  that  the  in- 
crease in  the  productive  power  and  rent  of  land 
is  due  very  largely  to  society,  not  to  the  indi- 
vidual's activity  and  effort ;  and  that  this  in- 
crease, which  is  called  the  "  unearned  increment " 
of  value,  belongs  to  the  whole  society,  not  to 


284    PRINCIPLES  OF  WEALTH  AND  WELFARE 

the  individual.  Such  a  claim  is  in  part  cor- 
rect, but  the  same  claim  should  likewise  be 
made  in  reference  to  the  earnings  of  any  other 
agent  or  to  the  price  of  any  other  commodity. 
As  we  have  already  seen,  production  along 
any  line  is  largely  a  process  in  which  the 
whole  economic  society  is  involved.  The  in- 
dividual produces  only  a  part  of  the  value 
which  exists  in  every  conceivable  form  of  goods ; 
society  produces  a  part  of  the  value  which  each 
of  these  forms  possesses.  There  is,  therefore,  in 
reality  a  so-called  "  unearned  increment "  in  every 
value.  There  is  an  "unearned  increment"  in 
rent,  wages,  interest,  and  the  pay  of  business 
management,  in  the  price  of  cotton,  corn,  and 
electric  or  gas  services,  and  in  the  price  of  any 
other  commodity.  The  amount  of  this  increase 
of  value  which  society  produces  varies  greatly. 
It  depends  largely  upon  the  special  field  of  pro- 
duction and  also  upon  its  situation.  And  the 
individual  is  justly  entitled  to  only  a  part  of 
these  increases  in  values ;  the  collective  body 
which  we  call  society  is  entitled  to  a  part  of 
them.  Both  the  individual  and  the  society  are 
their  producers.  It  follows,  therefore,  that  soci- 
ety has  no  moral  or  economic  right  to  take  in 
taxes  or  in  other  shapes  the  increase  which  it  has 
made  in  land  values,  unless  it  also  takes  the  in- 
crease which  it  has  made  in  all  other  values. 


DISTRIBUTION  OF  WEALTH  AND  RENT      28$ 

Socialism  and  Rent. — While  the  "single  tax" 
and  other  reformers  would  take  for  the  state  the 
entire  increment  which  society  adds  to  land 
values,  the  socialist  demands  that  the  state  be- 
come the  sole  owner  of  all  the  land  and  the  capital. 
Such  a  scheme  of  production  we  have  already 
considered  from  the  point  of  view  of  its  produc- 
tive power;  and,  if  it  should  ever  be  realized,  the 
problems  of  rent  and  interest  would  entirely  dis- 
appear. The  socialist  does  not  believe  in  rent 
and  interest,  because  he  does  not  believe  in 
the  justice  of  the  private  ownership  of  land  and 
capital.  To  his  mind  individual  ownership  of 
these  agents  of  production  is  thoroughly  un- 
sound, for  the  individual  does  not  and  cannot 
create  these  values.  Society  should  own  these 
agents  or  instruments  of  production  because 
society  creates  their  values.  To  his  mind  they 
are  instruments  of  oppression,  rather  than  in- 
struments of  production,  when  legally  owned  by 
individuals. 

QUESTIONS 

(1)  One  acre  of  land  rents  for  $10.     Another  acre  rents 
for  $5000.     What  factors  account  for  the  difference? 

(2)  Upon  what  does  the  rental  value  of  land  depend? 


CHAPTER  V 

DISTRIBUTION    OF   WEALTH   AND   INTEREST 

Interest  the  Earning  of  Capital.  —  The  source 
of  interest,  as  that  of  wages  and  rent,  is  in  the 
power  of  an  agent  to  produce  wealth.  The 
productive  power  of  labor  is  the  chief  source  of 
wages,  and  that  of  land  the  chief  source  of  rent. 
The  source  of  interest  is  likewise  in  the  capacity 
of  capital  to  produce  utilities  or  values.  A  part 
of  every  product  of  production,  therefore,  be- 
longs to  wages,  a  part  to  rent,  a  part  to  interest, 
and  finally  a  part  to  the  pay  of  business  man- 
agement. 

Interest  regulated  by  the  Inherent  Power  of 
Capital  at  work  under  its  Conditions  of  Supply  and 
Demand.  —  Capital  when  borrowed  by  the  em- 
ployer is  paid  interest  according  to  contract, 
and  in  this  respect  it  is  like  labor  and  land. 
But  what  ultimately  regulates  the  rate  of  this 
interest  ?  What  regulates  the  interest  of  capital, 
whether  its  use  is  hired  by  an  employer  or 
whether  its  use  is  employed  by  the  owner  ? 
According  to  our  standard  of  distribution,  the 
use  of  capital  is  paid  for  according  to  its  pro- 

286 


DISTRIBUTION  OF  WEALTH  AND  INTEREST     287 

dtictive  power,  just  as  is  the  use  of  labor  or 
land.  And  the  employer  or  owner  of  capital,  by 
experimentation  and  calculation,  can  estimate 
with  a  fair  degree  of  accuracy  this  productive 
power.  He  can  find  out  how  much  a  certain 
unit  of  capital,  say  $100,  can  produce  in  a 
year's  time  when  it  is  embodied  in  various 
tools,  instruments,  and  forms.  The  business 
world,  therefore,  knows  in  the  main  what  the 
productive  power  of  capital  is ;  and  this  power 
becomes  the  general  standard  of  its  pay  or  inter- 
est. This  productive  power  depends,  of  course, 
upon  the  form  of  production  in  which  the  capital 
is  employed,  upon  its  inherent  properties,  and 
also  upon  the  supply  of  capital  as  compared 
with  the  demand  for  it.  Capital  is,  therefore,  a 
commodity,  the  use  of  which  is  bought  and 
sold  on  the  market  for  a  price.  And  its  price 
depends  upon  the  properties  of  its  form  and 
upon  their  supply  and  demand. 

Efficiency  of  Capital  and  Interest.  —  It  follows, 
therefore,  that  there  exists  a  very  close  and  vital 
relation  between  the  efficiency  of  capital  and 
interest.  The  most  important  source  of  in- 
terest is  the  inherent  power  of  capital.  But 
this  inherent  power  of  capital,  and  interest, 
are,  as  we  have  already  said,  profoundly  influ- 
enced by  the  supply  of  the  capital  which  exists 
in  each  group  of  production  as  compared  with 


288    PRINCIPLES  OF  WEALTH  AND  WELFARE 

the  demand  for  capital  in  that  very  group. 
During  one  season  the  capital  which  is  invested 
in  cotton  culture  may  earn  8  per  cent  interest, 
while  during  another  season  it  may  not  earn 
more  than  6  per  cent.  At  one  time  capital 
produces  more  values  when  invested  in  farming 
lands,  at  another  time  in  city  lands  and  houses, 
at  another  time  in  manufacturing  of  one  type  or 
another,  at  another  time  in  mining,  and  at  still 
another  time  in  railway  or  steamship  transpor- 
tation. 

Supply  of  Capital  and  Interest.  —  The  market 
rate  of  interest  is,  therefore,  due  in  part  to  the 
supply  of  capital,  as  well  as  to  the  inherent 
productive  properties  of  the  special  forms  into 
which  capital  is  embodied.  Capital  can  to-day 
be  borrowed  in  New  York  City  at  4  per  cent 
interest,  while  in  many  parts  of  the  West  and 
South  its  present  market  rate  is  6  per  cent. 
Why  this  difference  in  market  rate  ?  In  New 
York  capital  is  abundant  as  compared  with  the 
other  agents  of  production.  Its  supply  is  very 
large  as  compared  with  the  demand  for  it,  and 
its  productive  power  per  unit,  per  $100,  is  con- 
sequently smaller.  In  the  South  or  West  the 
other  agents  of  production  are  relatively  more 
abundant  than  capital.  There  capital  is  small 
in  supply  as  compared  with  the  demand  for 
it,  and  in  consequence  its  productive  power 


DISTRIBUTION  OF  WEALTH  AND  INTEREST     289 

is  greater.  But  the  difference  in  supply  and 
productive  power  does  not  explain  all  of  the 
difference  which  exists  in  the  market  rate.  This 
does  not  entirely  explain  a  difference  of  2  per 
cent. 

Security  of  Economic  Conditions  and  Interest.  — 
In  the  loaning  of  the  use  of  capital,  or  in  the  sell- 
ing of  its  productive  power,  there  is  more  or  less 
of  risk.  To  be  sure,  it  is  usually  loaned  under 
the  ordinary  safeguards,  but  these  are  not  abso- 
lutely secure.  In  investing  capital  in  certain 
fields  of  production  and  in  certain  locations,  there 
are  great  risks.  The  enterprise  may  succeed  and 
pay  a  high  rate  of  interest.  It  may  fail,  and  the 
investor  may  lose  not  only  his  interest  but  also  a 
part,  if  not  all,  of  his  principal.  An  equal  quan- 
tity of  capital  at  work  under  the  same  conditions 
of  supply  and  demand  tends  to  produce  exactly 
the  same  interest,  and  the  market  rate  always 
tends  under  such  conditions  to  be  the  same, 
provided  the  conditions  of  economic  security  are 
equal.  The  difference  in  a  market  rate  of  4  per 
cent  in  New  York  City  and  that  of  6  per  cent  in 
Tennessee  is  in  part  due  to  the  difference  which 
exists  in  the  conditions  of  the  demand  and  supply 
of  the  capital  in  the  two  places,  and  also  in  part  to 
the  fact  that  economic  life  is  more  secure  in  New 
York  City  than  it  is  in  Tennessee.  Let  us  con- 
sider another  illustration.  During  periods  in 


290    PRINCIPLES  OF  WEALTH  AND  WELFARE 

the  middle  ages  capital  was  loaned  for  as  much 
as  40  per  cent  interest.  This  enormous  rate  was 
charged  partly  because  of  the  scarcity  of  capital, 
but  to  a  large  extent  because  of  the  chaotic  con- 
ditions of  economic  life.  In  many  cases  neither 
interest  nor  principal  was  ever  paid. 

Legislation  and  Interest.  —  We  have  seen  that 
the  state,  by  means  of  a  great  body  of  economic 
legislation  called  the  factory  acts,  has  to  an  extent 
indirectly  influenced  wages.  It  has  also  at  times 
attempted  in  a  direct  way  to  regulate  the  rate  of 
wages,  but  such  attempts  have  for  the  most  part 
failed.  For  wages,  as  for  the  prices  of  all  other 
services  or  goods,  the  great  forces  of  demand  and 
supply,  of  consumption  and  production,  are  the 
real  regulators.  Because  of  these  fundamental 
economic  forces,  wages  change  too  often  for  the 
state  to  accomplish  much  in  their  regulation. 
And  for  the  most  part  the  modern  state  allows 
the  distribution  of  wealth  into  wages,  rent,  and 
the  pay  of  business  management  to  work  itself 
out  without  restrictions.  But  in  the  distribu- 
tion of  wealth  into  interest  many  of  our  states 
take  a  greater  or  less  part.  In  many  of  the  states 
we  have  a  maximum  legal  rate  of  interest,  from  5 
per  cent  to  6  per  cent,  in  the  case  of  money  loans. 
Over  rates  on  loans  below  the  one  established  by 
law  the  state  has,  of  course,  no  influence.  It  like- 
wise makes  no  attempts  to  regulate  the  earnings 


DISTRIBUTION  OF  WEALTH  AND  INTEREST     291 

of  the  capital  which  is  invested  in  the  various 
forms  of  production.  One  hundred  per  cent  may 
be  received  from  such  an  investment,  and  the 
state  offers  no  objection  whatever.  But  for  an 
individual  or  a  corporation  to  loan  capital  in  the 
form  of  money  at  a  rate  which  is  greater  than  the 
one  established  by  law,  is  for  that  person  or  cor- 
poration to  commit  an  illegal  act. 

This  method  of  state  regulation  of  the  rate  of 
interest  on  money  loaned  has  long  been  in  opera- 
tion, but  it  has  exercised  in  the  main  very  little 
influence  upon  the  market  rate  of  interest.  The 
reason  of  such  legislation  is  likewise  very  old. 
Capital  in  the  form  of  money  has  always  been 
loaned  in  part  to  the  poor  and  the  unfortunate. 
And  the  state,  in  establishing  a  maximum  rate  at 
which  it  can  be  loaned,  is  attempting  to  protect 
such  individuals  from  the  greedy  demands  of 
money  lenders.  In  so  doing  the  state  is  render- 
ing society  a  service,  though  by  such  an  act  it 
does  not  seriously  affect  the  market  rate  of  inter- 
est. Interest,  like  the  prices  of  all  other  com- 
modities, is  in  the  main  regulated  by  mighty 
economic  forces,  over  which  such  a  legal  rate  has 
comparatively  slight  influence.  The  inherent 
power  of  capital,  under  the  conditions  of  its  de- 
mand and  supply,  is  the  great  and  fundamental 
regulator  of  interest.  The  state  may  protect  the 
unfortunate  from  paying  on  money  loans  a  rate 


2Q2    PRINCIPLES  OF  WEALTH  AND  WELFARE 

which  is  higher  than  the  market  rate  of  interest, 
but  it  cannot  by  any  method  whatever  really 
regulate  this  market  rate. 

Socialism  and  Interest. —  As  we  have  already 
said,  there  is  no  problem  of  interest  under  a 
socialistic  regime,  for  capital  as  a  producing 
agent  all  belongs  to  the  socialistic  state,  and  the 
individual  has  its  use  without  cost.  Under  such 
a  system  capital  would,  however,  play  a  very 
important  part  in  the  production  of  wealth.  It 
would  enable  the  individual  to  produce  more 
products  than  he  could  possibly  produce  by 
means  of  his  own  energy  alone.  But  in  the 
distribution  of  these  products  all  would  go  to 
the  individual  except  that  which  would  be 
necessary  to  replace  the  wear  and  tear  of  capital. 
Under  such  a  system  capital  as  a  producing 
agent  would  play  a  great  part,  but  capital  as  an 
earner  of  interest  for  the  owner  of  it  would 
entirely  disappear. 

QUESTIONS 

1 i)  Do  you  think  it  right  to  demand  and  receive  inter- 
est on  your  capital  ? 

(2)  Money  is  loaned  in  New  York  City  at 4  percent, 
and  in  North  Carolina  at  6  per  cent.     Why  the  difference  ? 

(3)  What  is  it  that  fundamentally  regulates  the  rate   of 
interest  ? 

(4)  Do  you  think  that  the  state  should  fix  a  maximum 
rate  of  interest,  say  6  per  cent? 


CHAPTER  VI 

DISTRIBUTION    OF    WEALTH  I    PAY    OF    BUSINESS 
MANAGEMENT  AND  PROFITS 

A.     Management  and  its  Pay 

Pay  of  Management:  the  Earning  of  Manage- 
ment. — The  great  productive  power  which  busi- 
ness management  possesses,  we  have  already 
considered  under  the  head  of  production.  We 
have  seen  that,  without  this  agent  in  some  form 
or  other,  there  can  be  little  or  no  production. 
With  it  and  the  other  agents  there  can  be  pro- 
duction upon  a  very  great  scale.  In  every  one 
of  the  almost  countless  products  there  is,  there- 
fore, a  part  which  has  been  produced  by  this 
agent,  and  there  are  also  parts  which  have  been 
produced  by  labor,  land,  and  capital.  A  part  of 
every  price,  then,  as  justly  belongs  to  manage- 
ment, as  do  the  other  parts  belong  to  the  other 
agents  of  production.  The  pay  of  management, 
just  as  the  pay  of  all  the  other  agents,  should  be 
according  to  its  productive  power.  And  the 
productive  power  of  this  agent  can  be  calculated 
and  estimated  by  the  business  world  just  as 
accurately  as  can  that  of  any  of  the  other  agents. 

293 


294    PRINCIPLES  OF  WEALTH  AND  WELFARE 

Pay  of  Management  regulated  by  its  Inherent 
Power  at  work  under  its  Conditions  of  Supply  and 
Demand.  — The  price  at  which  business  manage- 
ment sells  on  the  market  depends  both  upon  its 
inherent  properties  and  also  upon  its  supply  as 
compared  with  the  demand  for  it.  Manage- 
ment, then,  like  all  the  other  agents  and  other 
commodities,  sells  because  of  its  inherent  value 
and  because  of  the  prevailing  conditions  of  its 
market. 

Efficiency  of  Management  and  Pay  of  Manage- 
ment. —  But  of  the  forces  which  regulate  the 
earnings  of  management,  its  own  inherent  pro- 
ductive properties  are  certainly  the  most  impor- 
tant, though  the  conditions  under  which  it  sells 
have  much  influence  upon  its  price;  the  condi- 
tions under  which  it  works  have  much  to  do  with 
the  product  which  it  makes.  Managing  ability, 
as  well  as  the  other  agents,  is  divided  into  almost 
countless  fields,  groups,  and  subgroups  of  work. 
Let  us  consider  the  earnings  of  management  in 
some  of  these  groups.  In  one  group  manage- 
ment is  paid  per  unit,  per  man  let  us  say,  the 
annual  amount  of  $1000,  while  in  another 
group  it  is  paid  $7 5,000  for  its  earnings.  Such 
great  difference  in  the  pay  of  management  is 
popularly  supposed  to  be  unfair  and  unjust.  In 
the  minds  of  many  people  no  one  man  by  his 
managing  ability  can  within  a  year  produce  a 


MANAGEMENT  AND  ITS  PAY  295 

product  which  sells  on  the  market  for  at  least 
$75,000.  But  this  product,  as  we  have  said,  can 
be  estimated  and  calculated  with  considerable 
accuracy,  and  the  salary  paid  to  the  business 
manager  is  in  the  main  regulated  by  the  amount 
and  quality  of  that  product  which  he  makes. 
There  are,  to  be  sure,  business  managers  who 
do  not  and  cannot  earn  within  a  year  this  enor- 
mous amount  of  wealth,  and  who  are  still  paid 
this  great  salary,  but  they  are  exceedingly  few. 
While  there  are  exceptions  to  the  general  ten- 
dency, still  the  pay  of  business  management  is 
for  the  most  part  regulated  by  its  efficiency. 
While  there  are,  indeed,  many  men  who  cannot 
by  their  management  produce  an  annual  prod- 
uct which  sells  for  more  than  $100,  there  are 
others  who  can  produce  an  annual  product 
valued  on  the  market  at  $1000,  $10,000,  $50,000, 
or  even  $75,000. 

But  the  efficiency  of  management  depends 
largely  upon  the  special  group  of  production  and 
upon  the  extent  of  its  work.  During  the  times 
when  business  organizations  were  exceedingly 
small,  when  no  organization  carried  on  an  annual 
business  amounting  to  more  than  a  few  thou- 
sand dollars,  it  was  impossible  for  the  manager 
to  produce  a  product  of  such  great  value.  His 
task  was  then  small  as  compared  with  what 
it  often  is  to-day.  He  now  assumes  the 


296    PRINCIPLES  OF  WEALTH  AND  WELFARE 

responsibility  of  managing  interests  and  agents 
whose  annual  product  amounts  to  millions  and 
millions  of  dollars.  In  the  past  his  interests  did 
not  extend  beyond  the  bounds  of  a  single  city 
or  state.  To-day  the  manager  must  look  after 
interests  which  cover  every  corner  of  a  great 
country  and  to  an  extent  the  whole  world.  He 
must  manage  a  great  amount  of  labor,  land,  and 
capital,  as  well  as  the  demands  of  millions  of 
consumers.  The  productive  power  of  manage- 
ment is,  therefore,  the  regulator  of  its  pay.  But 
this  productive  power  depends  upon  its  supply, 
as  well  as  upon  its  inherent  properties. 

Supply  of  Management  and  Pay  of  Manage- 
ment. —  We  pay  the  enormous  annual  salary  of 
$75,000,  not  only  because  of  the  great  inherent 
power  of  the  individual  manager,  but  also  be- 
cause the  individuals  who  possess  the  inher- 
ent qualities  necessary  for  such  management 
are  exceedingly  few.  The  $1000  manager  is 
likewise  under  the  conditions  of  supply  as  com- 
pared with  demand.  In  the  case  of  the  $75,000 
manager  there  is  a  relative  scarcity,  while  in 
the  case  of  the  $1000  manager  the  supply  is 
relatively  great.  For  each  field,  group,  or  sub- 
group of  business  organization  and  manage- 
ment there  is  a  supply  of  this  ability.  For  the 
lower  groups  and  subgroups  the  supply  of  man- 
aging ability  is,  as  a  rule,  large  as  compared 


MANAGEMENT  AND  ITS  PAY  297 

with  the  demand  for  it,  and  the  price  is  conse- 
quently small.  But  for  the  higher  groups  and 
subgroups  the  supply  of  managing  ability  is 
small,  and  the  price  is,  therefore,  great. 

To  manage  the  greatest  of  our  manufacturing 
and  transportation  corporations,  requires  not 
only  great  talent  but  also  extraordinary  talent. 
To  manage  these  great  industrial  organizations, 
with  their  complex  interests  extending  through- 
out our  great  continent  and  to  the  uttermost 
parts  of  the  globe,  requires  talent  as  great  as 
was  requireii  of  a  Napoleon,  a  Washington,  a 
Lincoln,  a  Lee,  or  a  Grant.  And  that  such  tal- 
ent does  not  exist  in  great  abundance  needs  no 
detailed  proof.  The  world  knows  it,  and  it  has 
learned  this  truth  through  bitter  experience.  The 
man  who  possesses  great  powers  of  leadership, 
whether  they  be  along  the  line  of  government, 
war,  religion,  education,  or  the  industries,  lives 
nowhere  in  great  numbers.  As  economic  civil- 
ization goes  upward  and  onward,  we  may  expect 
to  see  an  increase  in  the  quantity  of  this  ex- 
traordinary talent,  but  we  shall  also  see  a  great 
increase  in  the  demand  for  it. 

B.     Management  and  Profits 

Profits  or  Losses,  Reasons  for.  —  We  have  seen, 
under  the  head  of  Section  III,  that  in  many 
prices  there  is  an  element  of  profits,  as  well  as 


298     PRINCIPLES  OF  WEALTH  AND  WELFARE 

wages,  rent,  interest,  and  the  pay  of  business 
management.  Management,  as  we  know,  is  the 
agent  to  which  these  profits  go  in  the  first  case. 
But  it  is  this  very  agent  which  assumes  the  risks 
and  responsibility  of  supplying  the  demand  for 
certain  products.  This  demand,  as  we  have  al- 
ready seen,  is  not  an  absolutely  definite  quantity, 
and  the  manager  may  produce  too  much  or  too 
little  of  the  products.  The  manager  must  also 
pay  wages,  rent,  and  interest  to  the  other  agents; 
and  these,  just  as  the  prices  of  all  the  ordi- 
nary commodities,  fluctuate  in  amount.  The 
cost  of  producing  any  unit  of  goods,  let  us  say 
a  yard  of  a  certain  grade  of  cotton  fabric,  can 
never  be  exactly  estimated.  It  may  be  more 
than  the  manager's  estimate.  It  may  be  less. 
The  price  at  which  the  manager  can  afford  to 
sell  his  products  to  the  consumer  cannot,  there- 
fore, be  exactly  calculated.  Nor  can  the  mana- 
ger calculate  the  exact  price  which  the  con- 
sumer will  be  willing  to  pay.  It  is  he  who  must 
bear,  in  the  first  instance,  the  loss,  in  case  he  is 
compelled  to  sell  his  products  at  a  price  which 
is  smaller  than  their  cost  of  production.  It  is  he 
who  likewise  receives,  in  the  first  instance,  the 
profits,  if  his  products  sell  for  a  price  which  is 
greater  than  their  cost  of  production. 

The    Manager    bears    in   Part    the  Losses  and 
receives  in  Part  the  Profits.  —  The  business  man- 


MANAGEMENT  AND  PROFITS  299 

ager  is  fairly  entitled  to  all  of  the  earnings  of 
his  management,  to  all  of  its  specific  products. 
Likewise  labor,  land,  and  capital  are  entitled 
to  their  specific  products.  If  the  manager  is 
compelled  by  the  conditions  of  the  demand  and 
supply  of  his  products  to  sell  them  at  a  price 
which  is  lower  than  their  cost,  he  has  the  per- 
fect economic  and  moral  right  to  shift  a  part  of 
this  loss  to  the  other  agents.  But  he  has,  as  a 
rule,  contracted  with  these  agents  for  a  certain 
price,  and  consequently  he  must  pay  their  part, 
whether  he  sells  his  products  above  or  below 
cost.  The  manager  will  not,  however,  produce 
more  products,  unless  he  can  sell  them  for  a 
higher  price,  or  unless  he  can  secure  the  services 
of  the  other  agents  at  a  lower  price.  He  will, 
therefore,  shift  more  or  less  of  the  loss  to  the 
other  agents. 

What  of  the  profits  which  come  to  him  ? 
According  to  our  standard  of  distribution,  the 
manager  is  entitled  to  his  own  earnings.  He 
is  also  entitled  to  all  the  cost  of  the  insurance  of 
his  goods  against  loss  or  destruction.  Can 
he  keep  the  profits  to  himself  alone  ?  Can  he 
keep  all  of  the  price  which  is  left  after  he  pays 
wages,  rent,  and  interest,  according  to  his  con- 
tract, and  after  he  pays  himself  for  his  own  pro- 
ductive power,  as  well  as  for  all  the  many  risks 
which  he  assumes?  We  believe  that  the 


300    PRINCIPLES  OF  WEALTH  AND  WELFARE 

business  manager  has  no  right  to  all  of  these 
profits.  A  part  of  them  belongs  to  the  other 
agents  which  help  to  produce  his  goods,  and  a 
part  to  the  consumer  of  his  goods.  But  can  the 
manager  keep  all  these  profits  to  himself,  in  spite 
of  the  fact  that  they  do  not  rightly  belong  to  him  ? 
In  case  he  should  retire  from  business  at  once 
after  receiving  these  profits  he  could  indeed 
keep  to  himself  alone  all  of  these  profits.  But 
the  business  manager  after  making  profits,  above 
paying  himself  for  his  managing  ability  as  well 
as  all  of  his  risks,  usually  does  not  retire  from 
business.  In  fact  he  is  driven  on  to  greater 
activity  and  effort,  in  order  to  make  still  greater 
profits.  It  is  the  manager  who  fails  to  make 
profits  that  is  willing  to  retire.  And  this  very 
desire  to  make  more  profits  causes  the  manager 
to  divide  a  part  of  his  profits  with  the  con- 
sumer. He  sells  him  goods  at  a  lower  price,  in 
order  to  sell  him  goods  in  greater  quantities. 
This  desire  for  greater  profits  also  causes  the 
manager  to  pay  higher  wages,  rent,  and  interest. 
He  must  do  this,  in  order  to  have  the  use  of 
greater  quantities  of  the  other  agents,  and  in 
order  to  produce  more  goods.  The  average  busi- 
ness manager  is,  therefore,  compelled  by  his  very 
desire  for  more  wealth  to  divide  a  part  of  his 
profits  among  others.  He  may,  and  does  at 
times,  distribute  only  a  small  part  of  his  profits 


MONOPOLY  MANAGEMENT  301 

to  the  other  agents  and  to  the  consumer.  He 
may,  and  does  at  times,  use  his  position  of  ad- 
vantage to  pay  the  other  agents,  especially 
ordinary  labor,  less  than  they  produce.  The 
manager  may  also  at  times  compel  the  con- 
sumer to  pay  a  price  which  is  greater  than  the 
normal  value  of  the  goods. 

C.   Monopoly  Management;  its  Pay  and  Profits 

Monopoly  Management  as  a  Producer.  —  Un- 
der Section  II,  we  have  considered  the  monopo- 
list as  a  producer  of  wealth.  We  have  seen  that, 
in  the  production  of  certain  manufactured  goods 
and  of  transportation  services,  the  great  corpo- 
ration, which  is  possessed  of  practical  monopoly 
powers  and  privileges,  is  a  powerful  producing 
agent.  Such  a  corporation  is  also  a  mighty  fac- 
tor in  the  distribution  of  wealth.  The  greater 
and  more  powerful  management  is  as  a  produc- 
ing agent,  the  greater  and  more  powerful  is  this 
factor  in  the  distribution  of  wealth  into  wages, 
rent,  interest,  pay  of  management,  and  profits. 
Likewise  the  greater  the  organization  of  man- 
agement, the  greater  is  its  influence  over  the 
prices  which  the  consumer  pays. 

Large  Monopoly  Producers  and  their  Great  Profits. 
—  The  people  of  the  United  States  have  within 
the  last  quarter  of  a  century  witnessed  a  stronger 
tendency  to  concentration  and  combination  in 


302    PRINCIPLES  OF  WEALTH  AND  WELFARE 

business  management  than  has  any  other 
people  in  the  history  of  the  entire  world.  The 
gigantic  corporation  has  entered  into  American 
economic,  political,  and  social  life,  to  an  unpar- 
alleled extent.  This  great  corporation  as  a 
productive  power  we  have  already  considered. 
We  have  seen  that  it  can  produce  at  a  lower 
cost  than  can  the  small  producer.  It  converts 
its  raw  material  entirely  into  finished  product 
and  none  of  it  is  wasted.  The  small  producer 
makes  only  a  few  products  out  of  his  raw  material 
and  allows  much  of  it  to  go  to  waste.  The  large 
corporation  also,  for  the  most  part,  makes  use  of 
specialized  and  efficient  skill  and  machinery  in 
the  manufacture  of  its  goods.  It  likewise  makes 
a  great  saving  in  the  advertisement  and  sale  of 
its  products.  The  small  competing  producers 
send  many  agents  and  circulars  into  the  same 
field,  and  duplicate  much  space  in  the  columns 
of  the  newspapers.  The  large  corporation  sends 
only  one  agent  and  pays  for  only  one  space  in 
the  advertising  columns.  The  small  producer 
buys  and  sells  in  small  quantities,  and  must 
consequently  pay  small  package  transportation 
charges.  The  large  corporation  buys  and  sells 
by  the  car  load,  and  saves  much  in  freight  and 
transfer  costs.  The  large  corporation,  with 
more  or  less  exclusive  control  of  a  certain  line 
of  production,  can,  therefore,  produce  its  prod- 


MONOPOLY  MANAGEMENT  303 

ucts  at  a  lower  cost  per  unit  of  products.  If  it 
sells  them  to  the  consumer  at  the  same  price 
that  the  small  producers  are  compelled  by  the 
cost  of  production  to  charge,  the  large  producer 
makes  great  profits. 

Monopoly  Management  and  the  Distribution  of 
Wealth:  (i)  The  Consumer. —  But  how  does  this 
large  monopolistic  producer  actually  treat  the 
consumer  of  its  products?  It  can  produce 
them  at  a  low  cost.  Will  it  also  sell  them  at 
a  low  price  ?  This,  of  course,  depends  upon  the 
conditions  of  the  market  of  these  products,  and 
also  upon  the  character  and  foresight  of  the  man- 
agement of  such  a  corporation.  The  manager 
who  thinks  little  of  the  future  of  his  business 
will  sell  for  the  time  at  that  price  which  will 
bring  him  the  greatest  net  returns  or  profits; 
he  will  sell  at  the  highest  possible  price. 

The  producer,  whether  monopolistic  or  com- 
petitive, is,  however,  only  one  party  to  a  price. 
The  price  of  every  product  is,  as  we  well  know, 
the  result  of  an  agreement  between  the  con- 
sumer and  the  producer.  If  the  producer  fixes 
the  price  of  a  goods  at  a  high  point,  the  con- 
sumer will  buy  a  smaller  quantity  of  this  goods. 
If  the  producer  charges  a  lower  price,  the  con- 
sumer will  buy  more.  The  amount  of  this  elas- 
ticity on  the  part  of  the  consumer's  demand,  in 
consequence  of  a  change  in  the  producer's  price, 


304    PRINCIPLES  OF  WEALTH  AND  WELFARE 

varies.  And  its  variations  depend  greatly  upon 
the  nature  of  the  goods,  as  to  whether  they  are 
more  or  less  necessary  to  the  consumer.  The 
manager,  even  though  he  is  striving  for  imme- 
diate maximum  returns,  is,  therefore,  greatly  in- 
fluenced by  the  consumer,  both  in  respect  to  the 
price  which  he  asks  and  the  quantity  of  the 
goods  which  he  produces. 

That  manager  of  a  great  and  monopolistic 
corporation,  who  on  the  other  hand  aims  for 
maximum  returns  in  the  future,  as  well  as  in  the 
present,  will  deal  much  more  kindly  with  the 
consumer  of  his  products.  He  will  do  far  more 
for  him  than  will  the  short-sighted  manager ;  he 
will  furnish  him  with  a  sufficient  supply  of  goods 
and  at  a  more  moderate  price.  And,  if  this 
manager  is  in  a  field  of  production  which  is 
subject  to  the  tendency  of  decreasing  costs,  if 
the  more  he  produces  the  less  per  unit  of  goods 
it  costs  him  to  produce  them,  he  will  treat  the 
consumer  in  a  still  kinder  manner.  He  will  sell 
him  goods  at  a  lower  and  lower  price.  In  such  a 
field  the  manager  desires  to  produce  as  great 
quantities  as  possible ;  it  costs  him  less  and  less 
per  unit  of  goods  the  more  he  produces.  He 
also  desires  to  sell  more  and  more. 

The  great  monopolistic  manager  produces  at 
a  lower  cost,  and  he  will  in  the  main,  it  seems 
to  us,  sell  his  goods  at  a  lower  price.  The 


MONOPOLY  MANAGEMENT  305 

power  which  the  great  corporation  producer  has 
over  the  consumer,  while  it  is  extraordinarily 
great,  is  not  infrequently  used  for  the  benefit  of 
the  consumer  as  well  as  of  the  producer.  There 
are,  it  is  true,  a  few  monopoly  managers  who 
really  and  truly  rob  the  consumer,  but  as  we 
see  it  their  number  is  by  no  means  great. 

Monopoly  Management  and  the  Distribution  of 
Wealth:  (2)  Labor, Land,  and  Capital.  —  In  what 
manner  does  this  wonderfully  great  manager 
treat  the  other  agents  of  production  ?  Such  a 
management  exercises  a  mighty  influence  over 
labor,  land,  and  capital.  It  is  a  great  factor  in 
their  market.  Does  it  use  its  position  of  advan- 
tage to  drive  hard  bargains  with  these  agents  ? 
Does  it  give  to  them  some  of  its  clear  profits  ? 
While  the  monopolistic  manager  wields  a  mighty 
power,  we  believe  that  upon  the  whole  this  power 
is  not  used  to  the  disadvantage  of  labor,  land,  or 
capital. 

That  the  manager  desires  to  buy  the  use  of 
his  agents  of  production  and  his  raw  material 
at  the  lowest  possible  cost,  no  one  will  deny. 
He  is  just  as  desirous  of  buy  ing  these  commodi- 
ties at  a  minimum  price,  as  he  is  of  selling  his 
own  finished  products  to  the  consumer  at  a 
maximum  price.  He  works  for  greatest  net 
profits  in  either  case,  just  as  does  any  producer, 
whether  small  or  large.  But  is  it  really  most 


306    PRINCIPLES  OF  WEALTH  AND  WELFARE 

economical  for  him  to  offer  the  minimum  rate 
of  wages,  rent,  and  interest  ?  We  have  already 
shown,  as  we  believe,  that  the  monopolistic  man- 
ager finds  it  a  matter  of  his  own  profits  to  take 
into  his  consideration  the  welfare  of  the  con- 
sumer, at  least  to  offer  him  goods  at  a  rate  which 
will  bring  to  the  producer  the  greatest  net  re- 
turns. We  also  believe  that  the  monopolistic 
manager  will  be  compelled,  in  the  main,  for 
the  sake  of  his  profits  to  offer  to  labor,  land,  and 
capital,  as  well  as  to  raw  material,  a  price  which 
will  cause  them  to  sell  their  services  to  him.  In 
actual  practice,  we  find  that  not  a  few  of  the 
largest  managers  pay  fair  wages,  rent,  and  in- 
terest, as  well  as  fair  prices  for  the  raw  material 
out  of  which  they  make  their  finished  products. 
No  one  will  deny  that  some  of  these  managers 
use  their  great  influence  to  drive  hard  bar- 
gains with  all  the  other  agents  of  production, 
and  also  with  the  producer  of  raw  material. 
The  number  of  such  managers  is,  however, 
very  small. 

Monopoly  Management  and  the  Distribution  of 
Wealth:  (3)  Other  Managers  in  the  Same 
Field.  —  The  use  which  the  great  corporation 
manager  makes  of  his  mighty  power  over  the 
consumer  of  his  products  and  over  the  other 
agents  of  production,  while  in  some  respects 
unjust  and  tyrannical,  while  in  some  respects  like 


MONOPOLY  MANAGEMENT  307 

that  of  the  robber,  is  far  the  larger  part  fair  and 
friendly.  Great  rewards,  it  is  very  true,  are 
obtained  by  these  producers,  but  they  also  pos- 
sess wonderfully  great  productive  power.  They 
are  great  producers,  and  their  pay  should  be 
correspondingly  great.  They  at  times  also  re- 
ceive enormous  profits,  but  they  must  at  other 
times  bear  great  losses.  Their  profits  for  the 
most  part  are,  however,  much  greater  than  their 
losses.  Of  these  clear  gains  they  keep  a  large 
part  for  themselves,  but  they  also  divide  both 
with  the  other  agents  of  production  and  with  the 
consumers  of  their  goods.  But  the  conduct  of 
the  great  corporation  manager  toward  his 
rival  producers  is,  on  the  other  hand,  much 
less  friendly  and  fair.  Not  infrequently  does 
this  rivalry  assume  the  spirit  of  trickery  and 
war.  It  should,  however,  be  said  that  rivalry 
between  two  individual  producers,  or  two  small 
corporation  producers,  at  times  assumes  a  spirit 
of  meanness  and  unfairness  not  to  be  excelled. 
But  in  either  case  such  spirit  is  to  be  dis- 
approved and  condemned. 

Monopoly  Management  and  the  Distribution  of 
Wealth:  (4)  The  Small  Stockholders.  —  In  this 
great  joint  stock  corporation  there  are  thousands 
and  thousands  of  stockholders,  both  large  and 
small.  The  actual  management  is,  however, 
carried  on  by  a  very  few  stockholders  whom  we 


308    PRINCIPLES  OF  WEALTH  AND  WELFARE 

call  the  directors  and  the  president.  Much  of 
the  capital  of  this  great  corporation  is  supplied 
by  men  who  know  exceedingly  little  of  its 
administration,  and  who,  by  virtue  of  the 
loose  corporation  laws  of  several  of  the 
American  states,  are  not  able  to  find  out 
many  of  the  facts  of  the  business  or  of  its 
management 

These  few  men  in  their  administration  can, 
and  not  so  infrequently  do,  carry  on  the  busi- 
ness largely  for  their  own  individual  interests, 
irrespective  of  the  interests  of  the  body  of  stock- 
holders. And  at  times  the  managers  gamble  in 
the  stocks  of  their  own  corporation,  for  their  own 
personal  gain  and  to  the  loss  of  the  small  holder 
of  stock.  They  also  at  times  overcapitalize 
their  enterprise,  from  two  to  five  times  its  actual 
earning  capacity,  and  offer  this  watered  stock, 
upon  which  dividends  can  never  be  paid,  to  an 
ignorant  public.  Such  conduct  as  this  is,  how- 
ever, not  necessarily  inherent  in  the  great  in- 
dustrial organizations.  If  we  had  a  system  of 
strict  corporation  laws,  as  have  several  of  the 
European  states,  such  conduct  would  be  im- 
possible. The  small  stockholder  and  investor 
unquestionably  have  the  right  to  know  the  chief 
facts  of  the  business  and  the  conduct  of  its  man- 
agers, and  it  is  the  duty  of  the  state  to  make  it 
possible  for  them  to  know  these  facts. 


LEGISLATION  AND  MONOPOLY  MANAGEMENT     309 

D.     Legislation  and  Monopoly  Management 

The  State  and  the  Distribution  of  Wealth. —  The 
state,  as  we  know,  takes  some  part  in  the  dis- 
tribution of  wealth  into  labor,  land,  capital,  and 
business  management.  The  legislation  which 
the  state  has  enacted  in  reference  to  the  first 
three  of  these  agents  and  their  earnings  we  have 
already  considered.  It  is  now  necessary  for  us 
to  discuss  the  legislation  in  reference  to  business 
management  of  the  large  type.  Management, 
when  organized  upon  a  small  scale,  is  supposed 
to  be  self-regulative,  and  its  abuses  are  thought 
to  be  largely  eliminated  by  the  working  of  the 
principle  of  competition.  But  management  up- 
on a  large  scale  possesses  such  a  mighty  power 
over  the  consumer  and  the  other  agents  of  pro- 
duction, and  this  power  has  at  times  been 
abused,  that  each  of  the  leading  nations  has 
enacted  a  considerable  body  of  laws  either  for 
its  destruction  or  its  regulation.  We  have  said 
under  Section  II  that  management  upon  a  very 
large  scale  has  in  the  main  been  along  the  line 
of  certain  manufactures  and  along  the  line  of 
transportation.  We  shall  now  speak  especially 
of  the  legislation  of  our  own  country  in  refer- 
ence to  these  two  lines. 

Legislation  and  Monopoly  Management  in  Man- 
ufacture and  Transportation.  —  As  we  have 


310    PRINCIPLES  OF  WEALTH  AND  WELFARE 

already  seen,  the  American  tendency  to  business 
management  upon  a  larger  and  larger  scale  has 
within  the  last  quarter  of  a  century  been  ex- 
ceedingly strong.  Within  this  period  we  have 
enacted  a  large  body  of  monopoly  legislation, 
which  in  popular  speech  is  called  anti-trust  leg- 
islation. And  practically  all  of  these  laws  have 
been  passed  for  the  purpose  of  destroying  such 
forms  of  business  management.  These  forms 
have  come  into  existence  within  such  a  marvel- 
ously  short  space  of  time,  and  their  power  in 
the  distribution  of  wealth  has  been  so  wonder- 
fully great,  that  they  have  seemed  monster-like 
in  the  minds  of  the  public.  They  have  appeared 
as  monsters  not  only  in  the  economic  aspects 
of  our  life,  but  also  in  the  political,  social,  in- 
tellectual, and  religious  phases  of  our  life.  The 
fact  that  they  possess  wonderfully  great  power 
in  the  production  and  distribution  of  wealth, 
and  that  this  power  has  at  times  been  employed 
for  the  oppression  of  others,  has  brought  upon 
them  wholesale  public  condemnation.  And  the 
fact  that  some  of  our  states  have,  by  charters, 
granted  to  the  managers  of  these  great  organi- 
zations the  legal  right  to  carry  on  a  business, 
in  which  the  small  stockholders  and  the  pub- 
lic are  vitally  interested,  in  practically  a  secret 
way,  has  had  much  to  do  in  causing  the  Ameri- 
can people  not  only  to  condemn  them  but  also 


LEGISLATION  AND  MONOPOLY  MANAGEMENT     311 

to  attempt  to  destroy  them.  Their  numerous 
points  of  great  advantage  have  in  the  public 
eye  been  overlooked.  Their  few  deeds  of  op- 
pression and  wickedness  have  been  talked  of 
and  thought  of  until  the  large  corporations 
loom  up  before  the  public  mind  as  the  very 
"  monsters  of  iniquity."  In  the  eyes  of  this  pub- 
lic, they  are  corporate  beings  in  whom  there  is 
no  soul,  though  in  fact  some  of  their  managers 
have  as  noble  souls  as  the  economic  realm  can 
anywhere  supply. 

State  Anti-Trust  Legislation  a  Failure. —  Under 
such  public  feelings,  more  than  thirty  of  our 
states,  as  well  as  our  national  government, 
have  passed  laws  called  anti-trust  or  anti-mo- 
nopoly laws.  These  laws  have  been  passed  for 
the  purpose  of  the  destruction  of  such  business 
management  as  is  upon  a  large  and  monopolistic 
scale.  And  these  acts,  though  new  in  their 
form,  are  based  upon  principles  which  are 
very  old.  For  almost  eight  hundred  years  the 
common  law  of  the  English  people  has  forbidden 
any  business  management  which  restrains  and 
eliminates  competition  in  production.  When 
the  American  states  are  legislating  for  the 
destruction  of  monopolistic  management,  they 
are  really  giving  definite  statement  to  an  old 
English  idea. 

But   what    has   all   this    legislation   for   the 


312    PRINCIPLES  OF  WEALTH  AND  WELFARE 

purpose  of  forbidding  and  destroying  manage- 
ment upon  a  large  and  monopolistic  scale  ac- 
complished ?  Such  forms  of  management  have 
wonderfully  grown  and  multiplied  in  the  very 
face  of  this  legislation.  The  anti-trust  laws 
which  are  upon  the  statute  books  of  more 
than  thirty  of  our  states  have,  as  we  well  know, 
been  practically  of  no  avail.  Many  of  them,  it 
must  be  confessed,  were  enacted  largely  for 
sentimental  reasons.  They  were  not  based 
upon  sound  and  practical  principles  of  business 
life.  If  these  laws  had  been  passed  with  the 
view  of  regulating  such  forms  of  management, 
not  of  destroying  them,  much  more,  we  fully 
believe,  would  have  been  accomplished.  To  at- 
tempt by  legislation  to  destroy  an  institution, 
which  possesses  many  points  of  great  advan- 
tage to  a  people,  is  practically  impossible.  The 
regulation  of  the  abuses  of  such  forms  of  man- 
agement by  means  of  legislation  is,  on  the  other 
hand,  both  a  very  proper  and  a  practical  thing. 
Business  management  on  a  large  scale,  as  we 
have  seen  under  the  head  of  production,  pos- 
sesses too  much  productive  power  for  any  peo- 
ple for  them  to  destroy  it.  And  the  sooner 
our  legislation  is  changed  from  the  idea  of 
destruction  to  that  of  regulation,  the  sooner  will 
the  control  of  the  state  over  the  great  and  pow- 
erful monopolistic  producers  become  effective. 


LEGISLATION  AND  MONOPOLY  MANAGEMENT     313 

There  is  yet  another  reason  why  the  anti- 
trust laws  of  our  states  have  been  of  little  avail. 
While  more  than  thirty  states  have  legislated 
for  the  destruction  of  monopolistic  manage- 
ment, New  Jersey,  Delaware,  and  West  Vir- 
ginia have  by  their  corporation  laws  stimulated 
the  formation  of  such  organizations.  In  fact, 
almost  95  per  cent  of  the  so-called  trusts,  which 
are  now  in  operation  in  our  whole  country,  have 
received  their  legal  rights  and  privileges  by 
charters  from  these  three  states.  And  the  con- 
duct of  monopoly  management  has  been  for 
the  most  part  legal;  it  has  been  according  to 
its  charter.  The  courts  of  the  states  which 
have  enacted  anti-monopoly  legislation  have 
been  inclined  to  act  according  to  judicial  cour- 
tesy and  to  accede  to  the  rulings  of  the  courts 
of  the  states  which  have  granted  the  charters. 
This  legislation  has  not,  therefore,  been  enforced 
by  the  courts.  The  corporation  laws  of  our  states 
differ  so  widely  that  it  is  practically  impossible 
for  the  individual  states  to  enforce  anti-trust  or 
anti-monopoly  legislation.  The  states  must  make 
their  corporation  laws  uniform,  or  their  control 
over  the  great  monopoly  producer,  who  carries 
on  business  throughout  our  "vast  country,  will 
continue  to  be  exceedingly  ineffective. 

National  Anti-Trust  Legislation  largely  a  Fail- 
ure.—  Legislation  on  the  part  of  the  states 


314    PRINCIPLES  OF  WEALTH  AND  WELFARE 

against  the  great  corporations  has  completely 
failed.  The  national  government  now  feels  called 
upon,  by  public  opinion,  to  undertake  the  matter. 
This  opinion  now  demands  that  our  federal 
government  destroy  and  prevent  such  forms  of 
management.  And  our  federal  government 
undertook  such  a  task  in  1890,  and  the  na- 
tional anti-trust  act,  popularly  known  as  the 
Sherman  law,  went  upon  the  statute  books 
of  the  American  nation.  But  through  a  period 
of  fifteen  years  this  act  has  remained  largely  in- 
operative. For  eight  years  it  was  thought  to 
be  unconstitutional,  and  during  this  time  it  was, 
of  course,  wholly  inoperative.  It  was  then  by  our 
courts  declared  to  be  constitutional  and  enforci- 
ble,  but  we  then  allowed  it  to  remain  without 
enforcement  for  five  more  years.  Since  1903  we 
have,  to  be  sure,  done  something  toward  its 
enforcement,  but  it  has  been  very  little.  Ac- 
cording to  this  act,  all  organizations  upon  a 
large  scale,  which  restrain  or  eliminate  the  prin- 
ciple of  competition,  are  illegal  and  shall  be 
destroyed.  But  still  such  forms  of  manage- 
ment have  grown  with  wonderful  strides,  and  in 
the  very  face  of  a  federal  act  forbidding  them ! 
Federal  legislation  for  their  destruction  has, 
just  as  that  of  the  individual  states,  almost  com- 
pletely failed. 

Need  of  Uniform  Corporation  Laws,  Publicity 


LEGISLATION  AND  MONOPOLY  MANAGEMENT     315 

of  the  Facts  of  Management,  and  Practical  Regula- 
tion. —  It  is  now  necessary  for  us  to  change  the 
basis  of  our  legislation.  Legislation  by  the  fed- 
eral government,  as  well  as  by  the  states,  to  be 
effective,  must  be  along  the  line  of  regulation, 
not  of  destruction.  There  must  also  be  great 
changes  in  our  corporation  laws.  We  need  one 
unified  system  of  such  laws,  as  some  of  the  Eu- 
ropean states  have,  instead  of  many  different 
systems.  Publicity  of  the  chief  facts  of  all 
forms  of  management  should  be  required,  so 
that  the  producer  who  would  compete  may  act 
in  the  light  and  not  in  darkness,  so  that  the 
smaller  stockholder,  the  consumer,  and  all  the 
other  agents  of  production  may  know  of  the  busi- 
ness and  its  management.  Such  a  requirement 
would  greatly  eliminate  the  gambling  in  stocks 
by  the  managers,  and  would,  therefore,  cause 
the  business  to  become  more  stable.  Such  a 
requirement  of  publicity  would  likewise  elimi- 
nate much  of  the  vast  quantity  of  water  which 
now  thoroughly  saturates  our  stocks.  The  in- 
vestor would  then  know  what  is  real  and  what  is 
fictitious  in  the  stocks  of  the  great  corpora- 
tions, and  he  would  pay  a  price  accordingly. 
He  now  buys  these  stocks  in  uncertainty  and  in 
ignorance.  Something  along  the  line  of  publicity 
is  now  being  accomplished  by  our  national  and 
state  bureaus  of  corporations,  but  as  yet  our 


316    PRINCIPLES  OF  WEALTH  AND  WELFARE 

regulation  of  the  great  corporations  has,  upon 
the  whole,  failed.  The  individual  states  work- 
ing by  themselves  have  almost  completely  failed. 
The  federal  government,  in  connection  with  the 
states,  has  largely  failed. 

That  these  great  corporations,  which  possess 
enormous  power  in  the  production  of  wealth,  and 
especially  in  its  distribution,  should  be  under  a 
sane  and  practical  governmental  regulation  needs 
no  argument.  They  unquestionably  possess 
great  productive  power  for  the  American  people, 
and,  while  this  power  is  oftentimes  employed 
for  the  wealth  and  welfare  of  all  the  people,  it  is 
at  other  times  employed  purely  for  the  benefits 
of  the  individual  managers.  What  the  fairest 
and  most  practical  form  of  this  governmental 
regulation  is  we  do  not  yet  know.  A  thorough- 
going system  of  sane  and  practical  regulation 
of  business  management  upon  a  large  and  mo- 
nopolistic scale  is  yet  to  be  worked  out.  This 
regulation  cannot,  of  course,  be  accomplished 
by  a  method  which  is  based  upon  sentiment. 
It  must  be  for  the  sake  of  all  the  parties  con- 
cerned. And  it  must  not  destroy  the  better 
parts  of  such  management ;  it  must  not  destroy 
its  productive  power.  But  the  abusive  and  op- 
pressive use  of  this  power  should  be  eliminated 
by  this  governmental  regulation. 

The  proposed  method  of  requiring  all  large 


LEGISLATION  AND  MONOPOLY  MANAGEMENT     317 

organizations  of  business  management  to  take 
out  charters  from  the  national  government,  as 
well  as  from  the  individual  states  in  which  they 
operate,  has  much  in  it  that  is  deserving  of 
most  careful  consideration.  This  requirement 
would  certainly  tend  to  create  a  uniform  body 
of  corporation  laws  in  all  of  the  states,  and  this 
is  highly  desirable.  It  would  likewise  specifi- 
cally confer  upon  the  federal  government  the 
legal  right  to  exercise  a  control  in  the  affairs  of 
all  the  great  corporations.  It  is  very  clear  that,  in 
our  own  country  at  least,  both  the  national  and  the 
state  governments  should  take  a  part  in  the  reg- 
ulation of  the  abuses  which  come  from  the  great 
and  monopolistic  corporations.  Under  our  pres- 
ent system  there  is  no  uniformity.  There  is 
great  conflict  of  authority  between  states  and 
states,  and  also  between  the  national  govern- 
ment and  that  of  the  individual  states.  And 
under  such  a  system  governmental  regulation 
must  be,  to  say  the  least,  most  chaotic  and 
inefficient 

QITESTIOHS 

(1)  Why  is  one  man  paid  $1500,  in  annual  salary,  for 
his  business  management  ?    Why  his  neighbor  $50,000  ? 

(2)  Who   assumes   die  risks  of  a    business?   the  la- 
borers ?  the  managers  ? 

(3)  Who  receives  the  profits  of  a  business  ?    Do  they  p> 
to  labor,  land,  capital,  as  well  as  to  management  ? 


318    PRINCIPLES  OF  WEALTH  AND  WELFARE 

(4)  Who  bears  the  losses  of  a  business  ?  the  manage- 
ment ?  labor  ?  land  ?  capital  ? 

(5)  Does  the  monopoly  manager  deal  fairly  in  the  dis- 
tribution of  wealth  into  wages,  rent,  interest,  and  pay  of 
business  management  ? 

(6)  Does  he  deal  fairly  with  the  consumer  of  his  goods? 


CHAPTER  VII 

DISTRIBUTION    OF   WEALTH  :    THE    STATE 

The  State  in  the  Production  of  Wealth.  —  Of 

the  state  as  a  producer  of  wealth  we  have  al- 
ready spoken.  We  have  seen  that  the  state, 
by  the  protection  which  it  renders  to  the  lives, 
liberties,  and  properties  of  the  individual  pro- 
ducer, creates  fundamental  and  vital  conditions 
of  wealth  production,  and  indirectly  produces 
wealth  and  welfare.  We  have  also  seen  that 
the  state,  by  its  educational,  industrial,  and 
commercial  policies  and  methods,  directly  pro- 
duces the  conditions  of  wealth  and  welfare. 
Though  these  utilities  which  the  state  creates 
are  in  many  cases  not  of  a  material  and  tangible 
form,  nevertheless  they  are  of  enormous  value 
in  the  production  of  those  utilities  which  are  of 
a  more  material  and  concrete  form. 

The  State  in  the  Distribution  of  Wealth;  How 
Much  should  it  Receive  ? —  The  state  plays  a  great 
part  in  the  distribution  of  wealth  as  well  as  in 
its  production.  Of  its  influence  in  the  distri- 
bution into  wages,  rent,  interest,  and  pay  of 
business  management,  we  have  already  spoken. 

319 


320    PRINCIPLES  OF  WEALTH  AND  WELFARE 

But  what  part  should  the  state  itself  receive  of 
every  product  of  the  economic  realm?  Ac- 
cording to  our  standard,  it  should  receive  the 
exact  amount  of  value  which  it  creates  or  pro- 
duces, no  more  and  no  less.  For  the  state  to  take 
in  taxes  or  other  forms  more  of  each  product  than 
it  really  produces  in  that  product,  is  for  the 
state  to  rob  the  individual.  On  the  other  hand, 
it  is  equally  true  that  the  individual  robs  the 
state  when  by  any  means  he  does  not  pay  into 
the  state  as  much  value  as  it  creates  in  each  of 
his  products.  Our  standard  of  value  for  value 
added  is  universal.  It  applies  to  all  social,  in- 
tellectual, and  religious  organizations,  as  well 
as  to  all  economic  institutions.  It  applies  to 
the  individual  worker,  whether  he  produces  raw 
wheat  or  cotton,  whether  he  creates  pieces  of 
art,  music,  and  literature,  or  whether  he  seeks 
after  the  great  truths  of  nature,  man,  and  God. 
It  likewise  applies  to  all  the  countless  organiza- 
tions of  the  individual. 

But  does  the  state  ever  receive  in  the  distri- 
bution of  wealth  more  than  its  own  specific 
product?  By  virtue  of  its  great  position  of 
influence  over  the  individual,  it  unquestionably 
possesses  the  power  to  take  more  than  its  own 
part.  Its  power  of  taxation  is  in  some  respects 
absolute.  The  exact  extent  to  which  this  enor- 
mous power  of  the  state  is  employed  depends 


DISTRIBUTION  OF  WEALTH:   THE  STATE    32! 

largely  upon  the  character  of  the  people  of  a 
state  and  upon  the  form  of  their  political  organ- 
ization. In  Russia,  for  instance,  the  state  may 
very  easily  take  more  than  the  part  which  it 
produces,  for  the  great  masses  of  Russians  have 
no  influence  whatever  in  their  government. 
In  England  or  the  United  States,  on  the  other 
hand,  it  is  much  more  difficult  for  the  state  to 
take  in  the  distribution  of  every  product  a  part 
which  is  larger  than  that  which  it  creates.  In 
these  states  all  the  people  exercise  a  power, 
direct  or  indirect,  in  the  government.  But  even 
in  some  of  our  own  municipalities  and  states, 
which  in  theory  are  thoroughly  democratic,  the 
government  takes  more  than  it  actually  pro- 
duces. In  these  cases  the  individual  citizen  is 
himself  responsible,  mainly  because  of  his  indif- 
ference to  either  good  or  bad  government ;  and 
he  at  times  allows  himself  to  be  robbed  by 
the  political  leaders. 

Efficiency  of  the  State  and  the  Quantity  of  Wealth 
it  Receives.  —  As  we  have  already  seen,  the  pay 
of  the  individual  worker,  whether  he  be  a  simple 
laborer  or  a  great  business  manager,  is  regu- 
lated by  his  inherent  power  and  by  the  con- 
ditions of  the  supply  and  demand  of  the  labor 
of  his  special  grade.  But  the  productive  power 
of  the  state  is  not  at  all  subject  to  the  condi- 
tions or  changes  of  the  market.  Its  supply  is 


322    PRINCIPLES  OF  WEALTH  AND  WELFARE 

practically  permanent,  and  its  services  are 
largely,  if  not  wholly,  monopolistic.  The  state 
has  no  competitor  whatever  when  it  supplies 
government  service  to  a  people.  The  pro- 
ductive power  of  the  state  depends,  therefore, 
entirely  upon  its  own  efficiency,  and  its  pay 
should  always  be  in  strict  proportion  to  this 
efficiency. 

State  Control  in  Economic  Life;  How  far. — 
That  the  state  should  exercise  some  control  in 
the  production,  and  especially  in  the  distribu- 
tion of  wealth,  follows  from  the  very  nature  of 
wealth  and  welfare.  Man  as  an  economic  being 
is  both  an  individual  and  a  part  of  a  larger  body 
which  we  call  society.  In  the  consumption  of 
wealth  he  is  more  individualistic,  or  at  least 
may  be,  than  he  is  in  its  production  and  distri- 
bution. But  in  all  the  aspects  of  his  economic 
life  he  is  greatly  influenced  by  his  social  sur- 
roundings ;  he  is  profoundly  influenced  by  the 
society  which  surrounds  him  and  of  which  he  is 
in  part  the  maker.  How  far  he  should  be 
allowed  by  this  society  to  be  individualistic,  this 
is  the  great  and  constant  question.  Every 
people  is  always  struggling  over  this  ever-vital 
question  and  the  answer  is  never  final. 

Two  Extremes:  State  Control  or  Complete  In- 
dividual Freedom.  —  We  may  at  one  time  have 
a  great  amount  of  state  control  of  economic 


DISTRIBUTION  OF  WEALTH  :    THE  STATE     323 

life.  The  state  may  regulate  wages,  rent,  in- 
terest, and  the  pay  of  business  management,  as 
well  as  the  part  which  it  itself  receives  from 
the  industries  of  its  citizens.  It  may  direct  the 
channels  of  manufacture,  transportation,  and 
commerce.  The  state  may  also  at  times  not 
only  regulate  economic  life  but  also  dominate 
it.  But  such  extreme  state  regulation  and  con- 
trol of  the  production  and  distribution  of  wealth 
takes  away  from  the  individual  much  of  his 
desire  to  put  forth  great  activity  and  effort. 
It  saps  his  vigor  and  deadens  his  ambition  to 
accomplish  things.  Under  such  a  dominating 
influence  economic  life  is  never  very  active, 
nor  is  it  many-sided.  In  a  country  like  Russia  or 
Turkey,  where  the  individual  is  in  a  large  sense 
a  servant  of  the  state,  if  not  indeed  a  slave, 
economic  life  is,  at  best,  only  one-sided.  It  is 
never  thoroughly  or  completely  developed.  Too 
much  state  regulation  and  control  in  the  indus- 
tries not  only  dwarfs  the  economic  life  of  a 
people,  but  alsojiecreases  its  wealth  and  welfare. 
The  other  extreme  is  equally  detrimental  to 
economic  life  and  progress.  Among  a  people 
whose  government  stands  aloof  and  permits  the 
individual  to  enjoy  almost  complete  freedom  to 
act  as  he  pleases,  anarchy  is  the  prevailing  con- 
dition. Under  such  a  government,  the  strong 
man  employs  the  weak,  but  pays  him  the 


324    PRINCIPLES  OF  WEALTH  AND  WELFARE 

minimum  of  wages  and  works  him  under  the 
most  unwholesome  conditions.  The  principle  of 
competition  may  at  times  bring  some  relief,  but 
this  very  principle  may  at  other  times  become  a 
savage  and  brutal  one.  Adam  Smith,  in  his 
famous  and  immortal  book,  The  Wealth  of 
Nations,  went  too  far  in  the  direction  of  in- 
dustrial freedom  to  the  individual.  His  posi- 
tion was  the  result  of  an  extreme  reaction.  His 
book  appeared  at  a  time,  in  1776,  when  much 
of  the  world  was  longing  to  be  free  from  the 
oppression  and  interference  of  the  state.  For 
centuries  and  centuries  the  individual  in  all  the 
aspects  of  his  life  had  been  largely  dominated 
by  the  government,  in  the  making  and  admin- 
istration of  which  he  had  exceedingly  little  part. 
He  now  yearned  to  be  free  not  only  in  his  po- 
litical, social,  intellectual,  and  religious  aspects, 
but  also  in  his  economic.  The  government,  of 
which  he  was  practically  no  part,  must  cease  to 
regulate  him  and  dominate  his  activities  and 
efforts. 

Adam  Smith  gives  voice  to  this  deep  long- 
ing for  a  greater  and  greater  freedom  to  the 
individual  in  his  economic  life.  The  English 
and  American  peoples  give  heed  to  this  voice, 
and  the  state  ceases  to  dominate  their  eco- 
nomic activities.  As  they  see  it,  wealth  and 
welfare  can  more  easily  be  produced  under  a 


DISTRIBUTION  OF  WEALTH:   THE  STATE    325 

regime  of  freedom  than  under  that  of  state  con- 
trol. The  government,  especially  in  England 
and  the  United  States,  grants  greater  freedom 
to  the  individual  producer.  Its  control  over 
wages,  interest,  and  the  pay  of  management 
almost  entirely  ceases  to  be  operative.  The 
state  no  longer  directs  the  channels  of  manu- 
facture and  trade.  The  business  manager, 
who  is  now  allowed  practically  perfect  freedom, 
grows  rich  within  a  few  months,  but  his  em- 
ployees are  compelled  to  work  for  long  hours 
and  small  wages,  and  under  unsanitary  and  dan- 
gerous conditions.  With  not  even  regulation 
on  the  part  of  the  state,  this  manager  adds 
enormously  to  his  own  wealth,  but  it  is  largely 
at  the  cost  of  welfare  to  his  employees. 

Complete  economic  freedom  to  the  individ- 
ual enables  the  strong  to  grow  rich  and  power- 
ful, but  it  diminishes  the  welfare  of  the  masses. 
Let  us  examine  a  few  illustrations.  Complete 
freedom  to  the  individual  to  coin  money  adds 
to  the  wealth  of  a  few,  but  the  great  variety  of 
money  which  comes  in  consequence  hinders 
industrial  and  commercial  life  beyond  calcula- 
tion. Perfect  freedom  to  the  individual  in 
banking  has  many  a  time  demonstrated  to  the 
whole  world  its  great  hindrances  and  evils. 
"  Wild-cat  "  banking  is  only  too  well  known, 
and  no  sane  man  thinks  of  absolutely  perfect 


326    PRINCIPLES  OF  WEALTH  AND  WELFARE 

freedom  to  the  individual  along  this  line  of 
production.  Neither  can  the  state  allow  per- 
fect freedom  to  the  individual  to  carry  on  manu- 
facture and  transportation,  and  to  employ  the 
productive  power  of  these  for  his  own  private 
wealth  and  at  the  cost  of  the  public's  welfare. 

Rigid  state  control  of  the  industries  of  a  peo- 
ple is  a  great  obstacle  to  their  progress.  Com- 
plete individual  freedom  in  economic  life  is 
equally  a  great  hindrance.  They  are  both  ex- 
treme methods.  They  must  each  be  modified 
and  combined  with  the  other  before  they  can 
bring  to  a  people  maximum  benefits. 

Individual  Freedom  under  State  Regulation  the 
Ideal.  —  In  many  aspects  of  his  economic  life, 
the  individual  should  enjoy  a  great  degree  of 
freedom.  When  possessed  of  such  freedom  he 
puts  forth  his  greatest  activity  and  effort,  and 
his  society,  as  well  as  himself,  receives  the  bene- 
fits. But  in  many  other  aspects  of  his  economic 
life  he  should  be  under  state  regulation.  The 
state,  not  the  individual,  should  maintain 
uniform  standards  of  weights,  measures,  and 
money.  The  wealth  and  welfare  of  the 
whole  society  absolutely  demand  that  these 
standards  be  not  left  to  the  individual  to  regu- 
late ;  their  uniformity  is  of  too  fundamental 
and  vital  importance  to  all  of  the  people.  The 
.individual  should,  on  the  other  hand,  have  the 


DISTRIBUTION  OF  WEALTH:   THE  STATE    327 

freedom  to  undertake  agriculture,  mining,  manu- 
facture, transportation,  or  commerce,  of  any  form 
and  upon  any  scale.  But  the  method  by  which 
he  carries  on  these  groups  of  production,  and 
especially  the  manner  in  which  he  distributes 
the  values  of  their  products,  should  at  all  times 
be  under  sane  state  regulation.  The  individ- 
ual should  have  the  perfect  moral  and  economic 
right  to  distribute  the  values  of  his  products  into 
wages,  rent,  interest,  and  the  pay  of  manage- 
ment, according  to  the  productive  power  of  each 
of  the  agents  that  produce  these  products.  He 
should  also  have  the  perfect  moral  and  economic 
right  to  sell  his  products  to  the  consumer  accord- 
ing to  their  values  and  according  to  the  condi- 
tions of  their  supply  and  demand.  So  long  as 
the  individual  so  acts  in  the  sale  of  his  products 
and  in  the  distribution  of  their  values,  the  society 
in  which  he  lives  and  labors  has  no  moral  or 
economic  right  to  restrict  his  freedom.  With 
such  conduct  on  the  part  of  the  individual, 
whether  it  be  voluntary  on  his  own  part,  or 
whether  economic  forces  compel  him  to  so  act, 
the  state  has  no  right  to  legislate  in  any  man- 
ner which  will  directly  or  indirectly  take  from 
his  liberty.  Liberty  under  such  conditions  is 
a  great  and  mighty  power  for  good.  Under  its 
powerful  stimulus  the  wealth  and  welfare  of  all 
are  wonderfully  increased. 


328    PRINCIPLES  OF  WEALTH  AND  WELFARE 

When,  however,  the  individual  does  not  act, 
or  is  not  compelled  by  economic  forces  to  act, 
according  to  such  a  standard  of  distribution,  the 
state  must  restrict  his  freedom.  When  the 
economic  forces  cannot  regulate  themselves 
in  a  manner  that  will  bring  wealth  and  wel- 
fare to  all,  the  state  should  regulate  these  forces. 
And  such  regulation,  if  sanely  and  fairly  done, 
becomes  a  great  power  of  benefit  and  bless- 
ing to  all.  Governmental  control  and  regula- 
tion of  the  individual  who  has  committed  no 
economic  or  moral  wrong,  saps  and  deadens  the 
vital  economic  force  of  a  people.  But  govern- 
mental regulation  of  the  individual  who  has 
transgressed  his  own  privileges  and  his  soci- 
ety's sacred  rights  causes  this  vital  economic 
force  to  be  wonderfully  multiplied. 

QUESTIONS 

(1)  How  much  of  your  wealth  should  the  state  receive  ? 

(2)  How  far  should  the  state  regulate  and  control  you 
in  your  business  activities? 


APPENDIX 


COURSE  OF  READINGS 

FOR  the  sake  of  simplicity,  only  a  few  books  are 
placed  on  our  list.  For  a  more  complete  list  the 
teacher  and  reader  are  referred  to  the  following 
works  :  The  Readers  Guide  in  Economic,  Social,  and 
Political  Science,  by  Bowker  and  lies  (Putnam's  Sons, 
N.Y.);  Outlines  of  Economics,  by  Ely  (Macmillan, 
N.Y.);  Introduction  to  the  Study  of  Economics,  by 
Bullock  (Silver,  Burdett  &  Co.,  N.Y.);  Introduc- 
tion to  Economics,  by  Seager  (Holt  &  Co.,  N.Y.); 
Principles  of  Economics,  by  Seligman  (Longmans, 
Green  &  Co.,  N.Y.). 


THE  HISTORY  OF  ECONOMICS 
Ingram,  J.  K. :  History  of  Political  Economy  (Macmillan,  N.Y.) 

GENERAL  ECONOMICS 

Seager,  H.  R. :  Introduction  to  Economics  (Holt  &  Co.,  N.Y.) 

Bullock,  C.  J.  :  Introduction  to  the  Study  of  Economics  (Silver, 

Burdett  &  Co.,  N.Y.) 
Gide,  C. :  Principles  of  Political  Economy  (Heath  &  Co., 

Boston;  1904  Ed.} 

Fetter,  F.  A. :  The  Principles  of  Economics  (Century,  N.Y.) 

Clark,  J.  B. :  The  Distribution  of  Wealth  (Macmillan,  N.Y.) 

Smith,  Adam :  Wealth  of  Nations  (Putnam,  N.Y.) 

Seligman,  E.  R.  A. :    Principles  of  Economics   (Longmans,   Green  & 

Co.,  N.Y.) 
329 


330 


APPENDIX 


Cheyney,  E.  P. : 
Coman,  K. : 


Hadley,  A.T.: 
Johnson,  E.  R. : 


Scott,  W.  A. : 
White,  H. : 

Dunbar,  C.  F. : 


Adams,  H.  C.  : 
Seligman,  E.  R.  A. : 
Taussig,  F.  W. : 

Dewey,  D.  R. : 
Ashley,  W.  J. : 

Ely,  R.T.: 

Adams  and  Sumner 
Mitchell,  J. : 


Ely,  R.  T. : 
Jenks,J.  W.: 
Meade,  E.  S. 


Ely,R.T.: 
Marx,  Karl : 


ECONOMIC  HISTORY 

An  Introduction  to  the  Industrial  and  Social 
History  of  England  (Macmillan,  N.Y.) 

The  Industrial  History  of  the  United  States 
(Macmillan,  N.Y.) 

TRANSPORTATION 
Railroad  Transportation  (Putnam,  N.Y.) 
American  Railway   Transportation  (Appleton, 
N.Y.) 

MONEY  AND  BANKING 
Money  and  Banking  (Holt  &  Co.,  N.Y.) 
Money  and  Banking  (Ginn  &  Co.,  N.Y.;     1902 
Ed.) 

Theory  and  History  of  Banking  (Putnam,  N.Y. ; 
1904  Ed.} 

PUBLIC  FINANCE 

The  Science  of  Finance  (Holt  &  Co.,  N.Y.) 
Essays  in  Taxation  (Macmillan,  N.Y.) 
The  Tariff  History  of  the  United  States  (Put- 
nam, N.Y.;    1900  Ed.} 
The    Financial   History    of  the    United  States 

(Longmans,  Green  &  Co.,  N.Y.) 
The  Tariff  Problem  (King  &  Son,  London.) 

LABOR 
The  Labor  Movement  in  America  (Macmillan, 

N.Y. ;    1905  Ed.} 

Labor  Problems  (Macmillan,  N.Y.) 
Organized  Labor    (Am.    Bk.   &  Bible   House, 

Phila.) 

MONOPOLIES 

Monopolies  and  Trusts  (Macmillan,  N.Y.) 
The  Trust  Problem  (McClure,  N.Y.;    1901  Ed.} 
Trust  Finance  (Appleton,  N.Y.) 

SOCIALISM 

Socialism  and  Social  Reform  (Crowell,  N.Y.) 
Capital  (  Translation}  (Humboldt  &  Co.,  N.Y.) 


INDEX 


Agents  of  production,  57-127; 
capital,  92-103;  labor,  57-74; 
land,  76-90;  management,  104- 
127 ;  each  paid  according  to  their 
productive  power,  234-236. 

Agriculture  (and  mining),  128- 
133 ;  first  aspect  of  production, 
128-130;  forms  of  wealth  — 
elementary  utilities,  130-131; 
importance  of,  130;  method  and 
organization,  131-133. 

Ambition  (laborer's),  59-60. 

Arbitration,  265-266. 

Army:  aid  to  production,  190; 
wants  for,  22. 

Aspects  of  production,  128-207; 
agriculture  and  mining,  128- 
133;  exchange  —  commerce, 
149-159;  exchange  —  money  a 
medium  of  exchange,  173-186; 
exchange  —  money  a  standard  of 
value,  161-172;  manufacture, 
134-138;  state  in  production, 
188-208;  transportation,  139- 
147. 

Births,  64-71. 

Boycott,  256-257,  263-264. 

Business,  motives  and  acts,  1-3. 

Canals:  aid  to  production,  193; 
wants  for,  20. 

Capital,  92-103;  capitalistic  pro- 
duction, 102-103;  mobility  of, 
99-100;  nature  of,  92-93 ;  pro- 
ductivity of,  94-102;  relation 
to  land,  97;  to  wealth,  95; 
treatment  of,  by  monopolist, 
305-306. 

Carnegie,  61,  109. 


Checks,  182-184. 

Cities  (American),  72. 

Coin,  176-179. 

Collective  bargaining,  254-255. 

Combination:  in  labor,  61-64; 
in  manufacture,  136-138;  in 
transportation,  145-147. 

Commerce  (exchange),  149-160; 
apparently  for  money,  in  reality 
for  goods,  155-157;  domestic 
and  foreign,  154-155;  impor- 
tance of,  149-50;  mechanism 
of,  153-154;  productivity  of, 
157-159;  relation  to  producer 
and  consumer,  151-153;  to 
production  —  time  utilities,  150- 

151-   _ 

Competition:  in  labor,  61-64;  iQ 
management,  122-124. 

Conciliation,  264-265. 

Consumer  (and  producer),  53-54, 
209-211,  303-305- 

Consumption  of  wealth,  13-49; 
amount  of,  25-28;  causes  of 
wants,  13-15 ;  how  to  distribute 
wealth  for,  45-46;  insufficient, 
28-33;  relation  to  commerce, 
151-153;  to  production,  46-49, 
209-226;  to  transportation, 
142-143;  to  welfare,  13-49;  of 
utilities,  not  of  material  things, 
23-24;  wants,  22-23;  waste, 

30-32. 
Cooperation  (in  production),  124- 

127. 

Copper  (coin),  176-179. 
Copyright,  aid  to  production,  192— 

193- 


331 


332 


INDEX 


Courts:  aid  to  production,  190- 
191;  wants  for,  22. 

Deaths,  64-71. 

Demand,  consumer's,  35-49;  de- 
crease in,  for  successive  units  of 
goods,  41-45;  elasticity  of,  37- 
39;  for  labor,  73-74;  for  land, 
83-86;  law  of,  39-40;  relation 
to  consumer's  value,  35-36; 
to  products,  52-53;  to  wants 
and  their  satiation,  35-36, 40-41. 

Demand  (  and  supply  ) :  consumer 
and  producer,  209-211;  inter- 
est, 286-289;  market,  211-212; 
market  value  and  price,  209- 
226;  increase  of  price,  222- 
226;  for  money,  183-185;  pay 
of  agents,  234-236;  pay  of 
management,  294,  296-297; 
rent,  275-276,  280-283;  spec- 
ulation, 212-214;  wages,  238- 
242,  244-247. 

Distribution  of  wealth,  227-328; 
agents  of  production,  pay  for 
productive  powers,  234-236; 
factory  acts,  270-273;  interest, 
286-292;  pay  of  management, 
293-317;  productivity  theory, 
231-233;  relation  to  produc- 
tion, 227;  rent,  275-285;  state, 
319-328;  trades  unions,  250- 
270;  value  for  value,  228-231; 
wages,  237-273. 

Drafts,   182-184. 

Economic:  acts,  2,  5-6;  forces,  10- 
1 1 ;  institutions  and  conditions, 
old  and  new,  7-8;  motives, 
2, 5-6  ;  relation  to  consumption, 
3 ;  to  the  forces  of  nature,  2-3 ; 
to  production,  3;  to  social 
sciences,  2-3. 

Economics,  definition  of,  1-3. 

Education:  aid  to  production,  60, 
192;  wants  for,  20. 

Endurance  (laborer's),  58-59. 


Energy   (laborer's),   58-59. 

Exchange:  commerce,  149-160; 
money  a  medium  of,  173-186; 
money  a  standard  of  value,  161- 
172. 

Executive:  aid  to  production,  191; 
wants  for,  22. 

Factory:  acts,  270;  children  and 
women  in,  271-273. 

Fertility  (land's),  78-80. 

Gold:  coin,  176-179;  dollar,  164- 
165;  Gresham's  law,  170-172; 
standard  of  value,  163-165, 
168-170. 

Greenbacks,  186. 

Gresham's  Law,  170-173. 

Groups  of  production :  see  Aspects 
of  production. 

Harbors,  aid  to  production,  193. 

Heat  (lands'),  80. 

Imagination  (laborer's),  60-61. 

Immigration,  64,  71-73. 

Individual:  capacity,  57;  eco- 
nomic acts  and  motives,  5-6, 
8-10;  imagination,  60-61;  in- 
telligence, 59-60;  method  of 
using  capacity,  61-64;  strength, 
58-59;  wants  for  development, 
18-20. 

Intelligence  (laborer's),  59-60. 

Interest,  286-292;  demand  for 
capital,  286-287;  earning  of 
capital,  286 ;  efficiency  of  capital, 
287-288;  legislation,  290-292; 
regulated  by  productive  power 
of  capital,  286-287;  security, 
289-290;  socialism,  292;  supply 
of  capital,  288-289. 

Judgment  (laborer's),  59-60. 

Labor:  ambition,  59-60;  amount, 
64-73;  births,  64-71;  capacity 
of  individual,  57-58;  char- 
acteristics, 5 ;  cities  (American), 
72;  climate,  65;  combination, 
61-64;  deaths,  64-71;  demand 


INDEX 


333 


for,  73-74;  economic  (and 
social)  conditions  and  ideals, 
66-70;  energy,  58-59;  en- 
durance, 58-59;  growth  in 
United  States,  70-73;  imagina- 
tion, 60-6 1 ;  immigration,  64- 
71;  intelligence,  59-60;  judg- 
ment, 59-60;  rich,  69;  skilled 
class,  69-70;  treatment  of,  by 
monopolist,  305-306;  unskilled 
class,  67-69;  vigor,  66;  west- 
ward movement,  72. 

Land:  amount  of,  80-82;  de- 
mand for,  83-86;  fertility  of,  78- 
80;  forces  of  nature,  76-78,89- 
90 ;  heat,  80 ;  light,  80 ;  mechan- 
ical properties,  78-80 ;  moisture, 
80;  relation  to  capital,  97;  to 
wealth,  97;  returns,  increasing 
and  decreasing,  86-89;  treat- 
ment of,  by  monopolist,  305-306. 

Legislation:  aid  to  production, 
191;  wants  for,  22. 

Legislation  and  monopoly  man- 
agement, 309-317;  anti-trust 
(national),  313-314;  anti-trust 
(state),  311-313;  in  manufac- 
ture, 309-311 ;  need  of  uniform 
corporation  laws,  3 1 4-3 1 7 ; 
state  in  the  distribution  of 
wealth,  309;  in  transportation, 
309-311. 

Letter  of  credit,  182-184. 

Light:  aid  to  production,  193; 
wants  for,  80. 

Loss :  borne  in  part  by  the  man- 
ager, 298-301 ;  market  price 
equals  cost  and  loss,  221;  rea- 
sons for,  297-298. 

Making  a  living  (and  religion),  i. 

Alan:  relation  to  wealth,  4-5; 
to  welfare,  4. 

Management,  pay  of:  earning 
of,  293-294;  efficiency,  294- 
296;  monopoly,  301-308;  prof- 


its, 297-303 ;  regulated  by  pro- 
ductive power  of,  294;  supply 
of,  296-297. 

Management,  a  producing  agent : 
competition,  122-124;  coopera- 
tion, 124-127;  form  of,  112- 
127;  importance  of,  105-106; 
large  scale,  114-115;  monopoly 
117-122;  productive  power, 
109-112;  small  scale,  114-115; 
socialistic,  124-127;  work  of, 
106-109. 

Manipulation,  212-214. 

Manufacture,  134-138;  forms  of 
wealth  —  higher  utilities,  135- 
136;  importance  of,  134-135; 
productive  power,  136-138. 

Margin:  pleasure  on,  45-46; 
product  on,  233-234. 

Market:  desires  to  buy  and  sell, 
216-217;  not  a  place,  215-216; 
price,  209-211;  size  of,  214- 
215;  value,  209-211. 

Measures,  system  of,  153,  192. 

Mechanical  properties  (land's), 
78-80. 

Medium  (of  exchange) :  see  Money, 
a  medium. 

Method  (laborer's),  61-64. 

Mining,  128-133. 

Money,  a  medium,  173-186;  com- 
position, 176-180;  coin,  176- 
179;  importance  of,  173-174; 
paper,  179-186;  properties  of, 
174-176;  system  of,  153, 
192. 

Money,  a  standard  of  value,  161- 
172;  features  of,  161;  gold, 
163-165;  Greham's  law,  170- 
172;  importance,  161 ;  medium 
also,  161-162;  prices,  165-167; 
properties,  162-163;  standard, 
double  or  single,  168-170. 

Monopoly,  in  distribution,  301- 
308;  consumer,  303-305 ;  capital, 


334 


INDEX 


labor,  land,  305-306;  legis- 
lation, 309-317;  pay  of,  301- 
308;  profits,  301-303;  rivals, 
306-307 ;  stockholders,  307- 
308. 

Monopoly,  in  production,  117- 
122;  kinds  of,  119-122. 

Nature:  in  capital,  92-93;  forces 
of,  2,  89-90;  in  production,  51- 
55,  76-78;  in  wants,  13-14, 16- 
18. 

Navy:  aid  to  production,  190; 
wants  for,  22. 

Nickel  (coin),  176-179. 

Notes:  national  bank,  182; 
United  States  treasury,  181. 

Paper  (money),  179-186;  checks, 
182;  drafts,  182;  gold  certifi- 
cates, 181 ;  greenbacks,  186;  let- 
ters of  credit,  182 ;  national  bank- 
notes, 182;  silver  certificates, 
180-181 ;  United  States  treasury 
notes,  181. 

Patents,  192-193. 

Population:  climate,  65;  eco- 
nomic (and  social)  conditions 
and  ideals,  66-67  >  growth  of,  in 
United  States,  70-73;  size  of, 
three  classes,  67-70;  vigor,  66. 

Postal  system,  192. 

Price  (consumer's):  demand,  35- 
36;  satiation  of  wants,  40-41; 
value,  35-36. 

Price  (market),  209-226;  cost, 
217-218;  cost  and  profits,  218- 
220;  cost  and  loss,  221-222; 
demand,  37-39,  211-212,  222- 
226;  speculation,  212-214; 
supply,  211-212,  223-226;  in 
standard  of  value,  16*- 
167. 

Producer  (and  consumer),  53-54, 
209-211. 

Production,  agents  of,  51-127; 
capital,  92-103;  labor,  57-74; 


land,  76-91;  management,  104- 
127;  relations  to  each  other, 
54- 

Production,  aspects  of,  128- 
207;  agriculture,  128-133;  com- 
merce, 149-160;  exchange, 
149-186;  manufacture,  134- 
138;  mining,  128-133;  money 
a  medium,  173-186;  money  a 
standard  of  value,  161-172; 
transportation,  139-148. 

Production  —  consumption ,  2  09- 
226. 

Production  —  distribution,  226- 
328.  _ 

Produ  ction :  i  ndi  vidual ,  51-52; 
its  nature,  51-56;  nature  in, 
51-52,  76-78;  relation  to 
capital,  92;  to  commerce,  151- 
153;  to  consumption,  46-49; 
to  management,  104-105;  to 
transportation,  141-142;  to 
welfare,  51-328;  scale  of,  114- 
115;  social,  51-52;  state  in, 
188-207. 

Productivity  theory  (of  distribu^ 
tion),  231-233. 

Profits,  218-220,    297-303. 

Railways  in  United  States,  144- 
145;  state  aid  to,  193;  state 
operation,  204-207. 

Religion :  relation  to  economic  life, 
1-2;  causes  wealth  to  be  a 
means  to  an  end,  4. 

Rent,  275-285 ;  efficiency  of  land, 
277-280;  power  of  land,  how 
estimated,  276-277;  regulated 
by  productive  power  of  land, 
275-276;  single  tax,  283-284; 
socialism,  285 ;  supply  of  land, 
280-283. 

Returns,  increasing  and  decreas- 
ing, to  land,  86-89 ;  increasing, 
to  large  scale  production,  115- 
117. 


INDEX 


335 


Rockefeller,  61,  109. 

Satiation  of  wants,  principle  of, 
40-41. 

Silver:  certificates,  180-181;  coin, 
176-178;  standard  of  value, 
164,  168-170. 

Single  tax,  283-284. 

Situation  (lands'),  82-83. 

Smith,  Adam,  324. 

Social  science,  1-3. 

Socialism:  interest,  292;  produc- 
tion, 124-127;  rent,  285. 

Society:  in  distribution,  265-268, 
270-273,  290-292,  309-317, 
319-328;  motives  and  acts,  5- 
6;  in  production,  1-2,  51-52, 
82-83, 188-207,  283-284 ;  wants 
in  individual,  14-15,  16-18; 
wants  for  own  development, 
18-22. 

Speculation,  212-214. 

Standard  of  value,  161-172; 
double,  168;  gold,  163-165; 
Gresham's  law,  170-172;  also  a 
medium,  161-162 ;  properties  of, 
162-163;  relation  to  prices, 
165-167;  single,  169-170. 

State:  a  consumer,  188;  control 
in  economic  life,  322-326;  in 
distribution,  309,  319-328; 
efficiency  of,  321-322;  func- 
tions of,  189-207;  toward 
individual,  8-10,  326-328. 

Statistics,  192. 

Strength  (laborer's).  58-59. 

Strikes:  wages,  257-258;  causes 
of,  258-260;  cost  of,  260-261; 
ethics  of,  261-262;  relief  from, 
263-268;  success  of,  258-60. 

Trades  Unions,  250-270;  extent 
in  England  and  United  States, 
251-252 ;  importance  of  union  to 
labor,  250-251;  legal  incorpo- 
ration, 266-268;  methods  in 
peace,  253-255 ;  methods  in  war, 


256-258;  methods  of  relief  from 
industrial  war,  264-268;  pur- 
poses, 252-253;  results,  268- 
270;  standard  of  work  and 
wages,  255-256;  strikes,  258- 
262 ;  suits  for  damage,  266-268. 

Transportation,  139-148;  com- 
bination, 145-148;  importance 
of,  139-141 ;  productive  power, 
143-148;  railways  in  United 
States,  144-145;  relation  to 
commerce,  149-151;  to  con- 
sumer, 142-143;  to  producer, 
142-143 ;  to  production-place 
utilities,  141-142. 

Utilities:  consumption  of,  23-24; 
decrease  in,  for  successive  units 
of  goods,  41-45;  elementary, 
130-131;  higher  form,  135-136; 
place,  141-142;  time,  150- 
152. 

Value  (market),  209-226;  con- 
sumer and  producer,  209-211; 
consumer's,  2 1 6-2 1 7 ;  cost,  217; 
demand,  35-49;  key  to  con- 
sumption, production,  and  dis- 
tribution, 228-229;  relation  to 
consumer's  value  and  price,  36; 
to  satiation  of  wants,  40-41 ;  to 
use  value,  217;  value  for  value, 
key  to  distribution,  229-231. 

Wages:  arbitration,  265-266;  boy- 
cott, 256-257;  collective  bar- 
gaining, 254-256;  conciliation, 
264-265;  efficiency  of  labor, 
2  4  7-2  49 ;  factory  acts ,  2  70-2  7 1 ; 
importance  of,  237;  limit  to 
number  of  workers,  253-254; 
peculiarities  of  the  labor  com- 
modity, 242-245;  strikes,  257- 
258;  supply  and  demand  of 
labor,  238-242;  trades  unions, 
250-270. 

Wants,  15-27;  classes  of,  18-20; 
inheritance,  15;  nature  causes, 


336 


INDEX 


13-14;  satiation  of,  13-34; 
society  causes,  14-15. 

Waste,  27-28,    30-32. 

Water  (lands'),  80. 

Wealth :  characteristics  of,  5 ;  defi- 
nition of,  4 ;  how  to  distribute,  for 
consumption,  45-46;  a  means 
to  man's  welfare,  4;  power  to 
satiate  wants,  24-25;  relation 
to  capital  and  land,  95,  97;  to 


man,  4-5;  result  of  effort, 
24-25. 

Weights:  aid  to  production,  192; 
system  of,  153. 

Welfare:  consumption  of  wealth, 
13-49;  consumption  and  pro- 
duction, 209-226;  distribution 
of  wealth,  227-328;  production, 
51-208. 


PROBLEMS  OF  THE  PRESENT  SOUTH 

A  discussion  of  certain  of  the  Educational,  Industrial,  and  Political  Issues  of  the 
Southern  States 

By  EDGAR   GARDNER   flURPHY 

Secretary  of  the  Southern  Education  Board 

Cloth  1 2  mo  $1.50  net 


"  Mr.  Murphy's  little  volume  deserves  to  be  read  by  all  thoughtful  Ameri- 
cans."—  The  Evening  Post,  New  York. 

"  No  other  study  —  brief  or  extended  —  of  the  social,  industrial,  and  educa- 
tional affairs  of  the  South  is  of  greater  value,  either  to  the  South  itself  or  the 
nation  as  a  whole,  than  this  volume  of  Mr.  Murphy's.  Its  merit  is  based  on 
two  facts:  First,  that,  while  it  is  written  from  within  the  South,  by  one  who, 
through  birth,  education,  and  training,  has  shared  the  Southern  traditions  and 
experiences,  it  is,  at  the  same  time,  written  '  within  the  national  perspective,' 
by  one  who  feels  that  the  nation  is  not  merely  the  North,  —  as  the  North  has 
often  assumed  and  as  the  South  has  not  denied,  —  but  embraces  all  sections 
as  equally  significant  and  equally  privileged;  and,  second,  that  it  avoids  no 
issue,  shirks  no  fact,  and  brings  to  the  various  problems  of  the  South  a  clear 
vision,  a  sound  logic,  a  temperance  and  a  devotion  that  are  all  of  the  very 
essence  of  patriotism."  —  The  Louisville  Post. 

"  The  book's  hopefulness,  its  moral  earnestness,  and  its  hold  upon  funda- 
mental principles  distinguish  it  among  recent  writings  bearing  on  similar 
educational,  industrial,  and  political  issues.  It  is  a  thoroughly  just  and  intelli- 
gent effort  to  contribute  from  the  standpoint  within  the  life  and  thought  of 
the  South  to  democratic  conditions  in  our  Southern  States;  and  the  indus- 
trial, educational,  and  political  problems  are  treated  as  phases  of  the  essential 
movement  towards  a  genuinely  democratic  order."  —  The  St.  Louis  Republic. 

" '  The  Present  South '  is  a  work  that  should  be  universally  read.  If  every 
intelligent  man,  woman,  and  child,  North  and  South,  could  be  brought  to 
learn  the  lessons  Mr.  Murphy  teaches  in  this  masterly  exposition  of  things  as 
they  are  and  as  they  should  be,  the  solution  of  the  problems  confronting  the 
people  of  this  country  would  be  forthwith  brought  measurably  nearer." 

—  The  Philadelphia  Telegraph. 

"  Mr.  Murphy  is  preeminently  qualified  to  speak  of  the  South  and  for  the 
South.  His  discussion  is  candid,  sympathetic,  and  Christian." — The  Outlook. 


THE    MACMILLAN   COMPANY 

64-66  Fifth  Avenue,  New  York 


FROM  THE  COTTON  FIELD 
TO  THE  COTTON  MILL 

A  study  of  the  industrial  transition  in  North  Carolina 

By  HOLLAND  THOMPSON 

Sometime  Fellow  in  Columbia  University 

Cloth  12mo  $1.50  net 


The  book  describes  the  evolution  of  the  factory  operatives  of  the  South, 
and  of  North  Carolina  particularly,  from  a  farming  people  who  have 
always  lived  close  to  the  soil.  The  differences  in  their  lives  and  the 
difficulties  of  adjustment  are  shown.  Just  exactly  who  these  operatives 
are,  is  told,  and  many  current  misapprehensions.  The  political,  religious 
and  social  changes  are  described  with  fidelity. 

The  author  has  lived  the  greater  part  of  his  life  in  the  sections  de- 
scribed, in  confidential  relations  with  the  managers,  superintendents, 
overseers,  operatives,  and  children.  He  has  visited  scores  of  mills  in 
North  Carolina,  and  has  given  the  judgments  and  observations  of  years. 


THE   MACMILLAN   COMPANY 

64-66  FIFTH  AVENUE,  NEW  YOEK 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 
BERKELEY 


Return  to  desk  from  which  borrowed. 
This  book  is  DUE  on  the  last  date  stamped  below. 


MAY  16 1952 


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